What the change of Administration may mean for the regulatory landscape.
There was no shortage of discussion topics during Day 3’s Securities Law Update panel. SEC lawyers from blue chip firms gave their perspective on a number of fronts, including speculation about the SEC’s direction under the incoming Administration and important compliance issues.
Moderating the panel was KPMG partner Timothy Brown, KPMG’s SEC Regulatory Matters Topic Team Leader.
We anticipate the SEC will focus on facilitating capital formation by reducing the compliance burden on public companies and creating an on-ramp for private companies of all sizes to go public. However, even with a renewed focus on capital formation, we still anticipate investor protection being highly important.
Erin McCloskey
KPMG Partner, Department of Professional Practice
New Administration = New focus
Similar to the messages we heard from Commissioner Uyeda on Monday, panelists agreed that the incoming Administration will bring a new focus to the SEC’s activities. John White, partner from Cravath, Swaine & Moore, suggested breaking the change down into three parts.
The period from now until inauguration (January 20) – expect business as usual in the Division of Corporation Finance and the Division of Enforcement during this time.
The period between the inauguration and when the new Chair will be confirmed by the Senate (anticipated in April/May 2025) – expect the appointment of an Acting Chair, who has similar authority as the Chair and therefore the ability to take decisive action to set the priorities of the Commission.
The period after the Chair is appointed (after April/May 2025) – expect a renewed focus on capital formation.
Panelists addressed three specific areas of focus by the SEC beginning in spring 2025.
Aaron Lipson, partner from King & Spalding, touched on how the SEC may address crypto-related issues by speculating that the focus will be on:
addressing registration and broker dealer concerns; and
withdrawing SAB 121 and developing accounting and disclosure updates tailored to the industry.
These changes may help to balance capital formation and investor protection.
Lipson stated that the Commission will continue to enforce the securities laws and ‘do what is right’, but speculated that the Enforcement Division may reduce the number of cases involving compliance issues and the monetary penalties it seeks in such actions. For example, while the number of enforcement cases involving risk factors and disclosure controls and procedures has risen lately, panelists expect that number to decline going forward.
Disclosure controls and procedures (DCP) remains an important focus for companies regardless of the change in Administration. Inadequate DCP can lead to repeated failures, which would subject a company to potential SEC enforcement and civil liability claims by shareholders.
Panelists listed several best practices for disclosure committees to consider.
Examine the adequacy of procedures in reporting matters timely to senior leaders.
In addition to legal counsel and senior management, involve those personnel with the most knowledge of the particular topic in the review of disclosures (e.g. ‘those with boots on the ground’).
Revisiting risk factors
Risk factor disclosures are a perpetual issue for SEC legal counsel. Panelists listed several best practices regarding these disclosures.
Revisit hypothetically stated risks and consider whether they should be framed differently given recent current events.
Discuss with legal counsel whether to update for events that may have materialized. Adjusting hypothetical risks for actual events is typically not a difficult exercise, though it is extremely important.
Update to discuss emerging risks.
Consider whether general risks are necessary or require updating.
With so many emerging issues that carry risks, we encourage companies to reevaluate their disclosure obligations, using a cross-functional approach that involves not only legal counsel but also relevant individuals from the business.
Meagan Van Orden
KPMG Partner, Department of Professional Practice
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