On September 11, 2020, the U.S. Securities and Exchange Commission (SEC) adopted, in substantially the form it had proposed, amendments to the requirements for statistical disclosures that bank and savings and loan registrants provide to investors.1
The rules rescind Industry Guide 3, Statistical Disclosure by Bank Holding Companies (Guide 3);2 codify certain Guide 3 disclosures into a new Subpart 1400 of Regulation S-K, eliminate other Guide 3 disclosures that overlap with other SEC disclosure requirements, U.S. Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS); and add certain credit ratio disclosure requirements.
According to the SEC, the rules aim to streamline compliance efforts and decrease reporting burdens for registrants and to enhance comparability among issuers. The changes also form part of the SEC's Division of Corporation Finance's (CorpFin) disclosure effectiveness initiative.
Guide 3 was first published in 1976 as a "convenient reference" to the statistical disclosures sought by CorpFin in registration statements and other disclosure documents filed by bank holding companies (BHCs).3 Guide 3 calls for statistical disclosures related to interest-earning assets and interest-bearing liabilities of BHCs. These disclosures were designed to assist investors in evaluating loan portfolio risk characteristics, among other risks, to BHCs. Guide 3 disclosures are commonly found in tabular form in the Description of Business or Management's Discussion and Analysis (MD&A) sections of a BHC registrant's SEC filings.
While Guide 3 has been amended on a few occasions, its last substantive revision was more than 30 years ago, in 1986. Since then, a number of significant financial reporting changes have occurred, including the issuance of new accounting standards by the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). In addition, especially since the financial crisis, the banking agencies have adopted a number of disclosure requirements for BHCs. Hence, in March 2017, the SEC published a request for comment seeking public input on possible changes to Guide 3.4 It noted that the financial services industry has dramatically changed since Guide 3 was published and that, consequently, existing guidance may not always reflect recent industry developments or changes in accounting standards related to financial and reporting requirements. The SEC published a proposing release on September 17, 2019 seeking comments on proposal amendments to Guide 3. Generally, the comments on the proposing release supported the changes. Below we summarize the key elements of the final rules.
Codification, Elimination and Addition
Certain Guide 3 disclosures will be updated and codified into a new Subpart 1400 of Regulation S-K. At present, Guide 3 and other industry guides do not constitute SEC rules, nor do they bear official SEC approval. Rather, they represent disclosure policies and practices followed by CorpFin to administer the federal securities laws and are intended to assist registrants and their counsel in preparing disclosures. The SEC's final rules would elevate the required disclosures from CorpFin guidance to SEC rules.
The final rules would not codify a number of Guide 3 disclosure items that currently overlap with existing SEC rules, GAAP or IFRS, in effect eliminating these Guide 3 disclosure requirements.
Scope and Applicability
Subpart 1400 applies to a bank, bank holding company, savings and loan association, or savings and loan holding company (collectively, bank and savings and loan registrants).
DOMESTIC AND FOREIGN REGISTRANTS
Subpart 1400 applies to both domestic registrants and foreign registrants. There are no specific accommodations for issuers that report in IFRS.
Rule 409 under the Securities Act of 1933 and Rule 12b-21 under the Securities Exchange Act of 1934 currently allow registrants, not just foreign registrants, to seek relief from providing information that is "unknown and not reasonably available to the registrant" or would involve "unreasonable effort or expense." To the extent that a foreign registrant that reports in IFRS encounters difficulties, it can rely on these rules in order to seek relief as needed.
Subpart 1400 reduces the reporting periods previously required under Guide 3 and aligns them with the relevant annual periods required by SEC rules for a registrant's financial statements.
Guide 3 requires BHCs to provide statistical disclosures for each "reported period." Guide 3 defines "reported period" as (i) five years of loan portfolio and summary of loan loss experience data, (ii) three years for all other information, except that, (iii) for all types of information (including under items (i) and (ii) above), registrants with less than $200 million of assets or $10 million or less of net worth may choose to present only two years of the required information. "Reported period" includes any additional interim period "necessary to keep the information from being misleading," and such additional interim period should be included "if a material change in the information presented or the trend evidenced thereby has occurred."
Under Subpart 1400, "reported period" is now defined as (1) for all disclosures, each annual period required by SEC rules for a registrant's financial statements and (2) any additional interim period subsequent to the most recent fiscal year-end if a material change in the information presented or the trend evidenced thereby has occurred. The SEC did not adopt the proposals that would have required certain credit ratio disclosures for each of the registrant's last five fiscal years in initial registration statements or offering statements. The final rules limit the required credit ratio disclosures to the periods for which financial statements are required.
As a result, Subpart 1400 generally reduces the reporting periods and aligns them with the number of years required by Regulation S-X to be presented in a registrant's financial statements.
1 Release No. 33-10835 (Sept. 11, 2020) (the "Release"), available at: https://www.sec.gov/rules/final/2020/33-10835.pdf.
2 The existing Securities Act Industry Guide 3 and Securities Exchange Act Industry Guide 3 are available at: http://bit.ly/2kT1C3f.
3 Release No. 33-5735 (Aug. 31, 1976), 41 FR 39007.
4 Release No. 33-10321 (Mar. 1, 2017), available at: http://bit.ly/2l6nV5w ("March 2017 RFP"). The March 2017 RFP
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