Clayton focused on interim and timely disclosure

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Securities and Exchange Commission Chairman Jay Clayton is focused on both more timely annual financial reporting from issuers, as well as the more consistent release of unaudited interim information in his mission to improve municipal disclosure.

The focus of Clayton's muni agenda was a subject of discussion during a Monday conference call involving the Government Finance Officers Association’s new disclosure working group and the SEC’s Office of Municipal Securities, according to multiple sources who participated in the call. In addition to clarifying Clayton's focus, sources said SEC staff downplayed a major fear issuers have about their enforcement liability related to interim disclosures.

“The point of yesterday’s call was to make sure that we truly understand what it is that the chairman is seeking so that the working group can put together their mission and action plan to meet those goals,” said Jessica Giroux, the National Association of Bond Lawyers' director of governmental affairs.

During the call with OMS Director Rebecca Olsen and Deputy Director Ahmed Abonamah, the working group learned that Clayton wants to see both more timely annual financial reporting and interim financial reporting.

Giroux said the working group also learned Clayton’s initial focus was on annual financial reporting, and that the OMS then dug into how long it takes issuers to file their comprehensive annual financial reports. The OMS found that some issuers maintain an investor relations website to provide interim financials, bridging the gap between the disclosures.


OMS said on the call it wants to see how that gap can be bridged.

"That’s part of what we’re going to investigate, is sort of what’s possible and how,” Giroux said.

Clayton said in December 2018 that he had asked OMS and the Municipal Securities Rulemaking Board to explore ways to improve the timeliness of issuer financial information.

“The SEC understands very well the complex scenario that is preparing an audited financial statement,” said Emily Brock, director of GFOA’s federal liaison center.

However, interim reporting could present challenges for less frequent issuers, Brock said. For some issuers, concentrating on interim financial statements could delay audited financial statements, which is not something issuers want, Brock said.

During the call, market participants talked about concerns issuers and their lawyers might have in providing interim information that is different than the final audited financials. Issuers have been worried that a discrepancy between interim and audited financials could cause them to be accused of misleading investors, and even charged with fraud.

“The OMS did a good job to explain that in order for it to actually be a problem, there would need to be an intent to defraud,” said Lisa Washburn, managing director of Municipal Market Analytics. “So if an issuer is doing the right thing, trying to provide information that is available and acting in good faith, the issuer shouldn’t be exposed to a greater risk by giving investors and the public that information."

Washburn was “heartened” to hear that interim disclosures could be an area for the municipal market to focus on.

“We have always advocated for more timely and more comprehensive disclosure and that includes interim disclosures, and so we are heartened to hear that that is something that maybe is an area that we can focus on.”

Moving the needle on more timely audited financial information could prove to be difficult, but the working group could focus on interim disclosures, Washburn said.

The call with OMS helped the working group clarify where it’s headed next, but the group does not have specific answers to how it plans to respond to Clayton's agenda, Giroux said.

GFOA put together its working group this past summer as a way to address overall issues with disclosure in the municipal market.

The working group members include the National Association of Bond Lawyers, National Association of State Treasurers, the National Association of State Auditors, Comptrollers and Treasurers, the National Association of Health and Educational Facilities Finance Authorities, the National Association of Municipal Advisors and the National Federation of Municipal Analysts.

The SEC did not respond to a request for comment on the call.

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