SEC's Division of Corporation Finance Issues Disclosure Guidance on European Sovereign Debt Exposure | Practical Law

SEC's Division of Corporation Finance Issues Disclosure Guidance on European Sovereign Debt Exposure | Practical Law

The SEC's Division of Corporation Finance issued guidance to registered companies on disclosure about exposure to European sovereign debt holdings.

SEC's Division of Corporation Finance Issues Disclosure Guidance on European Sovereign Debt Exposure

by PLC Corporate & Securities
Published on 09 Jan 2012 • USA (National/Federal)
The SEC's Division of Corporation Finance issued guidance to registered companies on disclosure about exposure to European sovereign debt holdings.
On January 6, 2012, the SEC's Division of Corporation Finance issued guidance for SEC registrants, particularly financial institutions, on disclosure about direct and indirect exposure to European sovereign debt. The guidance, as well as recent SEC comment letters to particular issuers on this issue, is motivated by the Division's concern that the current state of public disclosure on European sovereign debt is not detailed enough and is inconsistent between issuers.
The guidance identifies existing disclosure requirements where a discussion of European sovereign debt exposure may be warranted for a particular issuer, including:
  • MD&A disclosure on certain known trends and uncertainties.
  • For bank holding companies, Industry Guide 3 disclosure on certain cross-border outstandings to borrowers and foreign conditions giving rise to liquidity issues.
  • Risk factor and market risk disclosure.
The guidance recommends that registrants:
  • Provide disclosure separately by European country, and segregate disclosure between sovereign and non-sovereign exposure and between financial statement items (in addition to providing a gross funded exposure). Registrants should choose which particular countries to cover based on factors discussed in the guidance.
  • Consider whether to include disclosure of gross unfunded commitments.
  • Provide disclosure about hedges.
The guidance also provides a detailed outline of issues registrants should consider when preparing disclosure on this topic.
For general information on risk factor and MD&A disclosure, see Practice Notes, Risk Factors: What Keeps You Up at Night and Preparation of Management's Discussion and Analysis of Financial Condition and Results of Operations.