US Securities and Exchange Commission (SEC) chair Paul Atkins argued in favour of introducing new safe harbours from liability when companies disclose their risk factors.
Speaking at a symposium held by the Texas A&M School of Law this week (17 February), he outlined the rationale behind the SEC’s ongoing project to revise the non-financial disclosures companies are required to provide under Regulation S-K.
Atkins said the aim is to rationalise, simplify and modernise the regulation. After touching on governance and executive compensation reporting requirements, he highlighted the lengthy disclosures that companies provide on their material risk factors.
“Effectively reducing the volume of risk factors requires some creative ideas and out-of-the-box thinking,” he said. “If the primary purpose of risk factors is litigation defence, then reforms should go straight to the heart of the issue - potentially offering a safe harbour from liability.”
Atkins proposed that the SEC could adopt a rule allowing companies to omit disclosures on the impacts from events that are likely to affect most businesses.
“Such a safe harbour could incentivise companies to include fewer generic risk factors by shielding them from liability for events related to those generic risks,” he argued. “After all, if companies are not compelled to catalogue nearly every conceivable contingency to guard against hindsight litigation, then they can focus on risks that are more distinctive to their business.”