SEC Investor Advisory Committee Considers Shareholder Engagement and Non-GAAP Disclosures

On June 5, the SEC’s Investor Advisory Committee met to consider a number of matters, including engagement with beneficial owners and non-GAAP financial measure disclosures. The Committee considered recent innovations that have permitted fund managers to engage with fund investors to determine their voting preferences. The panelists provided varying perspectives on the proxy voting process and reviewed recent trends with pass-through voting, the potential impacts of implementing pass-through voting, and the challenges and opportunities associated with engaging beneficial owners in voting decisions. The panelists also addressed challenges and opportunities associated with the engagement of beneficial owners of directly-held equity securities. The Committee also considered the current state of non-GAAP financial measure disclosures, with the panelists addressing potential areas where the applicable regulations can be strengthened or clarified, the potential benefits of greater standardization of non-GAAP financial measures, the challenges and benefits of industry-specific measures and the potential impact of AI on non-GAAP financial measure disclosure.

On June 4, the SEC issued a concept release to solicit public comment on the definition of foreign private issuer (“FPI”). It has been many years since the SEC last considered what it means to qualify as a FPI. While it is too early to predict how the SEC might ultimately revise the definition, the data and potential approaches outlined in the concept release suggest that the SEC may consider adopting a more stringent framework for determining FPI status. In the concept release, the SEC staff analyzed two decades of FPI reporting activity, comparing characteristics of FPIs in fiscal years 2003 and 2023. The analysis focused on the number of FPIs, the jurisdictions of FPIs in terms of incorporation and location of headquarters and the extent to which FPIs have equity securities trading in other jurisdictions. The SEC is considering whether to revise existing thresholds in the FPI definition, such as lowering the shareholder test percentage or modifying the criteria for the business contacts test, as well as considering other potential tests, such as meeting a minimum level of equity trading volume on non-U.S. exchanges or requiring listing on a “major foreign exchange.” The SEC is also requesting comment on whether FPIs should be incorporated or headquartered in a jurisdiction that has a robust regulatory and oversight framework as determined by the SEC, while considering whether to establish additional mutual recognition systems, such as the limited mutual recognition approach for Canadian issuers. The SEC is also evaluating whether FPIs should be required to be incorporated or headquartered in a jurisdiction in which the foreign securities authority is a signatory to the IOSCO international cooperation arrangement.

On June 3, SEC Chairman Paul Atkins testified before the before the Senate Appropriations Subcommittee on Financial Services and General Government. In his written testimony, Chairman Atkins discussed the Commission’s mission, key priorities and recent changes at the SEC, as well as the agency’s fiscal 2026 budget request. On the topic of the SEC’s mission, Chairman Atkins noted his focus on the SEC’s three-part mission of protecting investors, facilitating capital formation and maintaining fair, orderly, and efficient markets. He noted support for the $2.149 billion fiscal 2026 budget request for SEC operations, which is flat as compared to fiscal 2025 and 2024 funding levels. Chairman Atkins noted that the SEC’s Offices and Divisions have decreased headcount by 15% since the beginning of the current fiscal year. Chairman Atkins noted that the agency has begun a process to review its technology infrastructure and contractual obligations. He emphasized that a key priority will be to develop a rational regulatory framework for crypto asset markets.

On May 27, the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), in collaboration with the National Association of Corporate Directors and with the assistance of PwC US, published an exposure draft of a Corporate Governance Framework for public comment. This Corporate Governance Framework is designed to complement and align with COSO’s Internal Control and Enterprise Risk Management frameworks. The exposure draft contemplates a framework that is comprised of six components: (i) oversight; (ii) strategy; (iii) culture; (iv) people; (v) communication; and resilience. Comments are requested to be submitted by July 11, 2025.

On May 22, a group of financial services industry trade associations submitted a petition for rulemaking to the SEC requesting amendment of the cybersecurity disclosure requirements that were adopted in 2023. The petition was submitted by the American Bankers Association, Bank Policy Institute, Securities Industry and Financial Markets Association, Independent Community Bankers of America, and Institute of International Bankers. The groups note that “[w]hile we continue to have significant concerns regarding the rule as a whole— including the requirements of Regulation S-K Item 106 relating to cybersecurity risk management, strategy, and governance disclosures—we believe the most urgent and problematic aspects are the cybersecurity incident disclosure mandates under Form 8-K Item 1.05 for domestic issuers and under Form 6-K for foreign private issuers, both of which require rapid—often premature—disclosure of material cybersecurity incidents.” The groups outline several reasons why the SEC should rescind the current cybersecurity disclosure requirement in Item 1.05 of Form 8-K, including concerns about confidentiality, complexity and market confusion that have arisen since the disclosure requirement became effective.