NEW DISCLOSURE REQUIREMENTS FOR FOREIGN ISSUERS
In a release dated September 28, 1999, the SEC formally adopted new disclosure requirements for Form 20-F, the form used by foreign private issuers for registration and reporting under the U.S. Securities Exchange Act of 1934. Many of these disclosure requirements also apply to the disclosure required in prospectuses used for an offering registered under the U.S. Securities Act of 1933. The purpose of the amendments is to incorporate the disclosure guidelines adopted in 1998 by the International Organization of Securities Commissions (IOSCO). These IOSCO guidelines were developed to allow issuers of securities to use the same basic form when registering in multiple securities markets.
IOSCO Guidelines
The IOSCO guidelines were developed by the IOSCO Technical Committee, which is comprised of 16 different domestic regulatory agencies that oversee the world's largest and most developed securities markets. The SEC is one member of the Committee. The guidelines form a core disclosure document that could be submitted to multiple jurisdictions with the minimum of national tailoring (and cost).
Amendments to Form 20-F
When the amendments become effective, the disclosure requirements of Form 20-F, except for most financial statement requirements, will track the IOSCO guidelines. For the most part, these amendments will not significantly alter the disclosure required by Form 20-F, only reorganize it. There are several important substantive changes from current standards that will result, however, including:
- Information concerning persons who beneficially own 5% (rather than the present 10% requirement) of the company's stock must be disclosed; the stock ownership of each officer and director must be disclosed on an individual basis, not in the aggregate
- Disclosure of certain related party transactions is required regardless of home country requirements
- A risk factor section is now required with standards similar to those used for domestic registration statements under the U.S. Securities Act of 1933
- More current financial information is required in connection with offerings; in most circumstances, audited financial statements can be no more than 15 months old (rather than 18 months as currently permitted) and interim financial statements can be no older than nine months
- The earliest two years of selected financial data may be omitted under some circumstances
- A new, narrower interpretation of the definition of "foreign private issuer" has been adopted, shifting the focus under the current rule on the number of U.S. "holders of record" to a definition requiring analysis of beneficial ownership by U.S. persons.
The amendments to Form 20-F will become effective on September 30, 2000, though in certain circumstances some reports filed after that date can be submitted under the current rules. Most notably, the new format will only be required for filings using Form 20-F as an annual report if the fiscal year the report is referencing ended on or subsequent to the effective date of the amendments.
Other Rules and Proposals Affecting Form 20-F
The SEC announced that it is considering reducing the six-month time period allowed for filing annual reports on Form month 20-F and requiring that submissions on Form 20-F be filed electronically on EDGAR.
The Commission staff has made it a practice to insist that U.S. offices of international accounting firms be involved in any audits done by the foreign offices of such firms, and the staff is further asking that the names of the involved U.S. partners be submitted along with any information from these audits. This non-disclosed practice recently begun by the SEC will often affect users of Form 20-F.