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Remarks to the SEC Investor Advisory Committee

Acting Chairman Michael S. Piwowar

March 9, 2017

Good morning, and welcome to the first Investor Advisory Committee (IAC) meeting of 2017.

I see several familiar faces here today.  On behalf of all of us here at the Commission, I would like to extend our thanks to the members of the IAC for your continued service to our agency and our country.  I am also delighted to welcome the IAC’s newest member, Jerry Solomon.

During my tenure as a Commissioner, my thinking has benefited greatly from the IAC’s recommendations.  Your mandate touches on almost everything we do at the Commission, from setting regulatory priorities, to the regulation of securities products, trading, fees, and disclosures, to promoting the integrity of the securities markets.   Since your last meeting on December 8, we have been busy with a number of initiatives.  Many of these are the result of recommendations provided to us over the years by the IAC.

The IAC has shown a keen interest in modernizing our disclosure system through the use of information technology.  I am pleased to report that the Commission recently considered and approved two such staff recommendations at our March 1 open meeting.

First, we adopted a requirement for registrants to include hyperlinks to the exhibits in their filings.  This is a simple, yet profound, change.  Currently, an investor seeking a company’s articles of incorporation, for example, might have to trawl manually through exhibit indices and dozens of archived filings.  Try multiplying the number of registrants, times the number of investors in those registrants, times the number of mouse clicks per investor to find such materials.  I think you will agree that this simple change will save investors countless hours of valuable time.

Second, the Commission proposed a rule that, if adopted, would require the use of inline XBRL for financial statement information and mutual fund risk/return summary information.  Currently, this information is submitted as a separate interactive data file via our EDGAR system.  Not only would this rule improve the accessibility of disclosures, but it would also take advantage of developments in XBRL technology to reduce both regulatory costs and burdens.  It is also reminiscent of the IAC’s 2013 recommendation to promote the collection, standardization, and retrieval of information filed with the Commission using machine-readable data tagging formats.  In my view, the proposal offers a Pareto efficient win-win-win scenario.  Investors win through improved access to financial information; registrants win through lower regulatory burdens; and the IAC wins by taking credit for helping us come up with a great idea.  (I win as an economist, too, because I get to use the term “Pareto efficient” in a public statement.)

The Commission also has recently approved posting of the long-awaited IFRS Taxonomy on our website.  This triggers a requirement that foreign private issuers preparing their financial statements in accordance with IFRS, as issued by the IASB, submit their financial statements in XBRL format.  Implementation is subject to a phase-in schedule, with an initial voluntary period followed by mandatory compliance for fiscal periods ending on or after December 15, 2017.

As I have pointed out before, disclosure-based securities regulation is the great innovation of our agency.  The object of disclosure is to empower investors to make independent and informed financial decisions.  Our task as regulators is to continuously look for ways to make regulation more efficient, effective, and appropriately tailored.

I think we have an excellent opportunity to do so by revisiting Industry Guide 3, Statistical Disclosure by Bank Holding Companies.  Guide 3 provides a handy reference to the statistical disclosures sought by the staff in registration statements and other disclosure documents filed by bank holding companies.  Considering it was first published in 1975 when bellbottoms were in style and it has not been substantively revised since 1986 when leg warmers were popular, it is time to look at Guide 3 with a fresh set of eyes.  I am pleased that last week the Commission approved a request for comment on how Guide 3 can best be updated to reflect today’s financial industry.

The IAC also has expressed its interest in reform of the municipal securities market.  Specifically, the IAC has recommended that we work to improve various aspects of transparency and disclosure for fixed-income investors.  On March 1, the Commission approved a recommendation from our Office of Municipal Securities that should do just that.

If adopted, the rule would improve public access to information about certain financial obligations incurred by issuers of municipal securities and obligated persons outside the public offering process.  Rule 15c2-12 currently imposes certain requirements on brokers, dealers, and municipal securities dealers.  When acting as underwriters in primary offerings of municipal securities subject to the rule, they must reasonably determine, among other things, that the municipal issuer has agreed to provide to the Municipal Securities Rulemaking Board (MSRB) timely notice of certain events.  The proposed amendments would add two new events to the existing list of events for which notice is to be provided to the MSRB.

Tomorrow, our Office of the Investor Advocate will be holding an Evidence Summit to kick off our new Policy Oriented Stakeholder and Investor Testing for Innovative and Effective Regulation (POSITIER) initiative.  Dr. Brian Scholl, the Principal Economic Advisor in the Office of the Investor Advocate, will be discussing the initiative during your first panel this morning.  As part of tomorrow’s event, the Office of the Investor Advocate will be exploring ways to improve the disclosure of mutual fund fees and costs, as recommended by the IAC.

As you can see, the IAC’s recommendations have been an invaluable source of insight and have greatly contributed to the SEC’s work in recent months.  I look forward to the contributions you are yet to make, and I thank you for your commitment to the IAC’s mission.