A top securities regulator has called for thought to be given to new ways technology can be used to improve corporate disclosures.
SEC commissioner Michael Piwowar in a recent speech discussed the benefits of technologies such as XBRL and HTML, which have become integral to companies’ regulatory filings such as financials and proxy statements.
The SEC last year adopted new rules requiring registrants to include an HTML hyperlink to each exhibit listed in the exhibit index of certain filings. ‘I realize this change may seem minor, even trivial, but you would be amazed at how many people – political appointees, civil servants, securities lawyers, compliance professionals, investors – approached me last year to extend their thanks for this rulemaking,’ Piwowar says in prepared remarks.
‘I would encourage both my colleagues at the commission and our friends in the private sector to think carefully about other changes we might make in this vein. Surely there are other areas, like HTML, where we can enhance the effectiveness of our disclosure system at minimal, or even reduced, cost?’
Piwowar makes his comments as part of a discussion of ‘RegTech’, which he notes refers in part to the use of technology by regulated entities such as public companies to streamline their compliance efforts and reduce legal and regulatory costs. For instance, he says, some observers have suggested using blockchain technology and artificial intelligence tools would ‘allow the easy and secure transfer of critical regulatory data to multiple federal agencies.’
He adds: ‘Most importantly, the term covers collaboration between private and public actors to take advantage of existing technologies to make everyone’s life easier.’
Expanding XBRL
The SEC has since 2009 required operating companies to submit financial statements in XBRL as exhibits and to post these exhibits on their websites. Early last year, the commission proposed rule amendments intended to improve the quality and accessibility of data submitted by public companies and mutual funds using XBRL by requiring them to use Inline XBRL (iXBRL).
In proposing the changes, officials wrote that this tool has the potential to benefit investors while decreasing the cost of preparing information for submission to the SEC.
'[S]tructuring financial disclosures so that they are machine-readable facilitates easier and faster analysis that can improve investor decision-making,’ then-acting agency chair Piwowar said at the time. ‘Structuring financial information can also assist in automating regulatory filings and business information processing. In particular, by tagging the numeric and narrative-based disclosure elements of financial statements and risk/return summaries in XBRL, those disclosure items are standardized and can be immediately processed by software for analysis.
‘This standardization allows for aggregation, comparison and large-scale statistical analysis that is less costly and more timely for data users than if the information were reported in an unstructured format.’
In a comment letter on the iXBRL proposal sent last June, CFA Institute agrees the change would have the benefits of reduced time and effort for issuers in preparing XBRL filings, a simplified and enhanced review process and greater accessibility of data, among other things.
It adds, however, that ‘[w]hile iXBRL will indeed help to improve data quality, it is not the only solution. To continuously improve the quality of data, greater guidance is needed for filers to help generate consistent, accurately tagged data as well as curtail the use of extensions.’ CFA Institute further calls for iXBRL to be required for reporting any SEC disclosure, including MD&A, all regulatory filings and earnings releases.
In a separate comment letter on the proposal, sent last May, the American Institute of Certified Public Accountants states: ‘Based on discussions with companies implementing and using iXBRL we know that the use of iXBRL by filers will both enable enhanced capabilities for users of financial information and provide efficiencies for preparers.’
