The SEC completed the first phase of its 21st Century Disclosure Initiative (21CDI) by releasing this report on Friday. Related items posted by the SEC include this speech (and related slides) given on Jan. 15 by Dr. Bill Lutz, the head of the 21st Century Disclosure project. See also SEC’s 21CDI Spotlight page.
As described by Law prof J. Robert Brown, Jr. in The Race To The Bottom Blog, “The Report does not recommend any change in the content of the current system of periodic reports. Rather, it is the opening salvo in a comprehensive technological update of the SEC's system of filings. Rather than rely on static documents, the Report recommends a more state of the art, interactive system for filing data.” [emphasis added]
Reactions to the project have varied
Brown has a generally positive take on the need for technological enhancements by the SEC, stating: “EDGAR is now 15 years old. The system was revolutionary in its day, making filings universally accessible at no cost over the SEC website. The system, however, requires modernization. Reliance on interactive data that can be manipulated and compared will be a useful change. In the short term, interactive data will probably be most valuable to market professionals such as analysts. Over time, ordinary investors will benefit, less from direct analysis and more from software programs likely to come onto the market that can monitor changes in the financial condition of public companies and provide comparisons, perhaps in an analysis of the risk assumed by these companies.”
In contrast, other views on the 21CDI project have previously been posted (prior to release of the final 21CDI report) by TheCorporateCounsel.net Blog’s Broc Romanek, e.g. in his Aug. 20, 2008 post Alas, Edgar RIP and his Oct. 8, 2008 post Today’s 21st Century Roundtable: Another Ten Cents. In the latter post, Romanek stated: “When I read the SEC's strategic plan, I was disappointed that the direction of the [21CDI] initiative clearly seems to be in the vein of ‘form over substance.’ The SEC's vision of this project seems to consist of creating a ‘Company File System,’ where all the core information about a company would be in a centrally and logically organized interactive data file. When you read that description, a fair question might be: ‘Isn't that what Edgar does today?’ And a straight-faced answer would be: ‘For the most part, yes.’”
Core recommendations in report; next steps
The core recommendations in the report, which can be found in its Executive Summary, are:
- Disclosure information and other data should be submitted and stored in an interactive format.
- The Commission should consider establishing a data warehouse, with a principles-based framework for managing the data.
- The Commission should consider providing for multiple submission methods for disclosures.
- The Commission should consider providing for multiple dissemination methods for disclosures.
When the 21st Century Disclosure Initiative was first announced by the SEC (June 24, 2008 press release), they stated a second phase of the project, following release of the report, would be the formation of an advisory committee to consider the report’s recommendations and further actions. The report issued on Friday describes the status of the advisory committee as follows: “Although not discussed in detail, we believe that the Commission should consider establishing an advisory committee composed of investors, filers, information intermediaries, and others to further develop the ideas outlined below. Such a committee would give the Commission insight on how to develop a modernized disclosure system with maximum input from the primary users of the system.”
The nature and timing of the launch of phase 2 of the initiative – the advisory committee – may be impacted by the fact that a new SEC chair is waiting in the wings. The Senate Banking Committee conducted confirmation hearings on SEC Chairman Designate Mary L. Schapiro last week (see link to testimony; and here’s a link to Footnoted.org’s Michele Leder’s live blogging from the hearing); a full Senate vote will need take place to confirm the nominee as chair.
Also, some unanticipated major events have taken place since the 21CDI was first launched, including the acceleration of the credit crisis, the fall of Lehman, the rise of TARP, the exposure of the Madoff fraud, and other matters. Additionally, some significant new and proposed rulemaking has been imparted by the SEC in the past six months, including approval of a final rule mandating the move to XBRL, and issuance of a proposed roadmap on a potential mandatory move to IFRS.
My two cents - speaking for myself only - I'd say it is possible, but not probable, the SEC could issue some formal rule proposals for public comment based on the recommendations in the 21CDI report (which cites input from roundtables previously held on this project) without forming an advisory committee. At this point, I’d still venture to guess that no action would be taken on 21CDI report’s recommendations until an advisory committee is formed, and that formation of the advisory committee may be on hold due to other priorities connected with other rulemaking initiatives, and attention being given to regulatory reform more generally (including the structure and interrelationships of regulatory agencies), a subject which Congress, the U.S. Treasury Department and others have been contemplating for over a year now, with new urgency and potentially a new direction charged by the credit crisis, the Madoff fraud, and other recent events.
Committee on Capital Markets Reg Issues Updated Rec’s
On the regulatory reform front... Last week, the private sector Committee on Capital Markets Regulation (CCMR) issued an updated set of recommendations for regulatory reform. (See CCMR recommendations.) CCMR was informally referred to by some as the ‘Paulson Committee’ when it was launched a couple of years ago, in light of statements encouraging the formation of such a committee by U.S. Treasury Secretary Henry Paulson. CCMR was the first major group to issue recommendations on regulatory reform a couple of years ago, although the tenor of calls for regulatory reform in some sectors, in light of events that have taken place over the past year, has modulated some from a couple of years ago. CCMR’s staff director is Harvard Law School Professor Hal Scott.
CCMR’s latest recommendations include “The U.S. should have only two, or at most, three independent regulatory bodies overseeing the financial system: the Federal Reserve Bank (“Fed”), a newly-created independent United States Financial Services Authority (“USFSA”) and possibly another new independent investor/consumer protection agency.” (CCMR says it is possible the investor/consumer protection agency would be part of the USFSA.) Additionally, CCMR states: “the Committee believes that the [financial regulatory] functions must be coordinated by the President through the office of the Secretary of the Treasury.” Footnote 3 in the summary of recommendations states, “In March, the Committee will release a new report—“Capital Markets Regulation After the Credit Crisis”—addressing key substantive regulatory issues.”
Upcoming on the regulatory reform front: as we previously reported, GAO issued a report last week on a framework for considering proposals to modernize the financial regulatory structure. Separately, the Congressional Oversight Panel (COP) established under the Emergency Economic Advisory Act of 2008 has issued two oversight reports so far on the TARP program, and is set to issue a report and recommendations on regulatory reform (having conducted a related hearing last week).
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