At a recent Practising Law Institute conference, William Hinman, Director of the Securities and Exchange Commission’s Division of Corporation Finance, commented on the application of the Commission’s principles-based disclosure requirements to areas posing complex risks, such as Brexit.  Hinman noted that, “[p]rinciples-based disclosure requirements articulate an objective and look to management to exercise judgment in satisfying that objective by providing appropriate disclosure when necessary.”  The particular areas in which preparers of filings might consider addressing the impact of Brexit include the MD&A section and Risk Factors section of SEC filings.  To that end, Director Hinman noted that, “[a] well written MD&A allows investors to understand how management is positioning the company in the face of uncertainties, like those associated with rapidly evolving topics such as Brexit.”  Hinman reported on the Division’s review of disclosures contained in filings made by registrants across a range of industries regarding the impact of Brexit.  He noted that most companies provided only generic disclosures that are not helpful to investors.  Many of the more tailored disclosures reviewed by the Staff were prepared by foreign private issuers.  In light of this, Hinman noted that there is room for continued improvement relating to Brexit disclosures.  He urged companies to consider a number of questions, including the following:

  • How does management assess and analyze Brexit-related risks and the potential impacts on the company and its operations?
  • What is management doing to mitigate and manage these risks?
  • What is the nature of the board’s role in overseeing the management of these risks?
  • In examining the disclosures, finally, would the disclosures satisfy the curiosity of a thoughtful, deliberative board member considering the potential impact of Brexit on the company’s business, operations and strategic plans?

Hinman provided a number of examples of disclosure topics related to the impact of Brexit that companies across a range of industries might consider as they prepare more tailored disclosures.  Hinman also commented on sustainability disclosures and noted that he believes there are still evolving views regarding the utility and materiality of sustainability disclosures.  In light of this, Hinman seemed to favor reliance on principles-based disclosure requirements, rather than new prescriptive sustainability disclosure requirements.  He reminded the audience that in 2010 the Commission had published an interpretive release that considered how disclosure requirements may pertain to climate-related issues for some companies.  The full text of the Director’s remarks are available here: