An ambitious rulemaking agenda at the Securities and Exchange Commission (SEC) over the past year has prompted discussion over whether the cost to comply with so many major policy changes over a short period of time is tenable for smaller public companies.
The agency’s Republican minority does not believe that to be the case. In remarks at a Columbia Law School conference Friday, SEC Commissioner Mark Uyeda spoke out against overregulation and its impact as a deterrent to companies going public through the traditional initial public offering process.
“As with any business decision, private companies balance the benefits of being a public company … against the costs of being a public company,” Uyeda said. “While the commission does not dictate market conditions, it can encourage capital formation by promulgating rules that are grounded in financial materiality and adequately consider smaller public companies’ ability to pay for the compliance costs.”
This time last year, the SEC proposed significant rule changes regarding climate-related disclosures and the reporting of cybersecurity incidents. The proposed rules—just two among many others still pending—have drawn significant attention for the potential constraints they might put on businesses to meet their requirements.
The climate rule, for example, carries estimated first-year compliance costs of $640,000 for large companies—a projection some feel to be conservative. The estimated first-year burden for smaller reporting companies—$490,000—isn’t much lower. Though the agency expects compliance costs for the rule to decrease over time, confronting the initial sum might prove a tall task for many businesses.
With that in mind, Uyeda stumped for providing more opportunities for scaled disclosure and staggered compliance dates for smaller reporting companies as part of his speech.
“[S]maller reporting companies should, by default, have delayed compliance dates of at least one year on any new disclosure rule,” he said. “This allows smaller companies to benefit from the legal, consulting, and accounting work received by larger companies on new rules.
“… If smaller public companies can benefit from implementation efforts by larger companies, then smaller companies might be able to significantly reduce their compliance costs associated with new rules.”
Uyeda concluded by saying the SEC “should create a regulatory environment that appropriately balances the costs and benefits associated with any required disclosures while considering its investor protection mission. This starts by ensuring that the commission’s disclosure regime mandates information only if it is financially material.”