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The SEC Lends a Hand to Banks in this Low Interest Rate Environment

On May 9, 2019, the U.S. Securities and Exchange Commission) proposed amendments to the definitions of “accelerated filer” and “large accelerated filer” in Exchange Act § 240 12b-2 to reduce the number of issuers that would qualify as accelerated filers and exempt more companies from the Section 404(b) of the Sarbanes-Oxley Act’s requirement to provide an auditor’s attestation of management’s assessment of internal control over financial reporting (ICFR).

As wonky as that sounds, as explained below, it substantially reduces compliance costs for banks with revenues of less than $100 million – providing relief from the requirement to obtain an attestation on their ICFR and management’s report on such assessment, while also providing more time to file periodic reports. The SEC estimates over 500 issuers would move from the accelerated or large accelerated filer categories to the non-accelerated filer category as a result of the proposed amendments. Of those issuers, approximately 20 percent are in banking.

Background

In June of 2018, the SEC amended its definition of “smaller reporting companies” to expand the number of issuers eligible to qualify as an SRC and benefit from reduced disclosure requirements. Prior to the June 2018 amendment, the reporting regimes for SRC’s and non-accelerated filers were aligned, but at the time of the SRC change, the SEC did not change the threshold for accelerated filer status. As a result of the June 2018 amendment, some issuers became categorized as both SRCs and accelerated or large accelerated filers, which provided them with some measure of reduced disclosure requirements while still subjecting them to the SOX 404(b) auditor attestation mandate. 

Proposed Amendments

Under the current definitions, an issuer must have had a public float of $75 million or more but less than $700 million to be an accelerated filer, or $700 million or more to be a large accelerated filer. The proposed amendments would exclude any issuers that are (1) eligible to be an SRC and (2) had annual revenues of less than $100 million in the most recently completed fiscal year from the SOX 404(b) auditor attestation requirement.

Additionally, issuers who initially qualified for large accelerated filer status currently remain large accelerated filers until their public float falls below $500 million, at which point they become accelerated filers. The proposed amendments would adjust the transition threshold for exiting large accelerated filer status to $560 million to align with the SRC transition threshold. The proposed amendments would also adjust the threshold for which issuers transition from accelerated/large accelerated filer to non-accelerated filers from $50 million to $60 million.

The proposed amendment also adds a revenue test to the transition thresholds for exiting accelerated or large accelerated filer status.

Effects of the Proposed Rules
Status Public Float

Annual Revenues

SRC and Non-Accelerated Filer

Less than $75 million N/A

$75 million to less than $700 million

Less than $100 million

SRC and Accelerated Filer

$75 million to less than $250 million

$100 million or more

Accelerated Filer (not SRC)

$250 million to less than $700 million

$100 million or more

These issuers would still be required to comply with other SOX mandates, including audit committee independence requirements, CEO and CFO certifications, and the requirement to establish and maintain internal control over financial reporting (ICFR) and have management assess its effectiveness. However, as can be seen in the table below, a non-accelerated filer has significantly more time to prepare its annual report.

Status Filing Deadline
Periodic Report Annual Report
Non-Accelerated Filer 45 90
Accelerated Filer 40 75
Large Accelerated Filer 40 60

 

 

 

 

The proposal is subject to a 60-day public comment period with comments likely due in late July.

© 2021 Dinsmore & Shohl LLP. All rights reserved.National Law Review, Volume IX, Number 157
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About this Author

David J. Lavan, Dinsmore, Corporate Litigation Attorney, SEC Registration
Partner

David is a partner in the Corporate Department who focuses his practice on all aspects of SEC registration, reporting and compliance. He routinely advises clients on public and private offerings of debt and equity, disclosure matters, corporate governance and accounting issues. As a former government bond broker, David provides clients with unique insights into the financial marketplace, counseling them on transactional and regulatory matters, as well as litigation. He represents both public and private companies, as well as independent board and committee members,...

202-372-9122
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