On October 11, 2017, the SEC voted to propose certain amendments to various disclosure requirements based on recommendations set forth in a November 2016 staff report prepared in response to a requirement of the Fixing America’s Surface Transportation (FAST) Act. The proposed disclosure changes, which are most significant with respect to non-investment company registrants but also include changes applicable to investment companies and investment advisers, are intended to modernize and simplify disclosure requirements in a manner that reduces costs while continuing to provide investors with all material information, improve readability and navigability, discourage repetition and disclosure of immaterial information and provide for consistent rules regarding incorporation by reference and hyperlinking. SEC Chairman Jay Clayton stated that “[t]he FAST Act has given the Commission the opportunity to update our rules, simplify our forms, and utilize technology to make decisions more accessible.”

The following is a summary of the notable proposed changes applicable to investment companies and investment advisers:

•    Incorporation by Reference: The proposals include several changes in the rules governing incorporation by reference, including:

 – Amendments of various rules imposing specific requirements and limitations on incorporation by reference under specified circumstances (i.e., Rule 411 under the Securities Act of 1933; Rules 12b-23 and 12b-32 under the Securities Exchange Act of 1934; Rules 0-4, 8b-23 and 8b-24 under the Investment Company Act of 1940; and Rule 0-6 under the Investment Advisers Act of 1940) to create a consistent approach to incorporation by reference and cross-referencing to disclosure found elsewhere in a filing (including financial statements);

 – An amendment of Item 10(d) of Regulation S-K that would eliminate the general prohibition on incorporating by reference documents that have been on file with the SEC for more than five years; and

 – Amendments of Rule 0-4 under the 1940 Act and Rule 0-6 under the Advisers Act that would (1) eliminate the requirement for a separate accountant’s consent to be filed with any filing incorporating by reference a certificate of the independent registered public accountant filed previously or concurrently; and (2) eliminate current provisions that allow the SEC to refuse to permit incorporation by reference when, in the SEC’s judgment, incorporation by reference would render a registration statement, report or application incomplete, unclear or confusing. The latter provision would be replaced with a general requirement that information may not be incorporated by reference in any case in which incorporating such information by reference would render the disclosure incomplete, unclear or confusing.

•    Hyperlinks and HTML: The proposals include amendments to Rule 411 under the Securities Act, Rule 12b-23 under the Exchange Act and Rule 0-4 under the 1940 Act that would require hyperlinks to information incorporated by reference that is available on EDGAR, together with a specific description of the location of that information, as well as expanded requirements to file registration statements and shareholder reports in HTML format to support the proposed hyperlinking requirements.

•    Compliance with Section 16(a) of the Exchange Act (Item 405 of Regulation S-K): The proposals include amendments to Item 405 of Regulation S-K that would permit registrants to rely on electronically filed Section 16 reports to determine whether there are any delinquencies required to be disclosed and that would eliminate the requirement in Rule 16a-3(e) under the Exchange Act for reporting persons to deliver to the registrant duplicates of Section 16 reports. However, the amendments would clarify that although registrants may rely on electronically filed Section 16 reports, they are not required to limit their inquiry to those filings.

The public comment period will be open until January 2, 2018.