In his congressional testimony today, US Securities and Exchange Commission chairman, Christopher Cox, talked about the initiatives and priorities underway at the SEC to improve financial disclosure for individual investors.

Speaking before the U.S. Senate Committee On Banking, Housing, And Urban Affairs, Cox said, “Since making the transition from the halls of Congress to the SEC, I have set out to rededicate the agency’s ongoing efforts in virtually every area to the service of the individual investor.”

“In a well ordered market, educated consumers can choose from a number of competitive products, and find what they want at a price they are willing to pay. But in order to educate themselves, investors need comparative facts,” he said. “So while investors must bear the responsibility of learning what they can about their investment choices, the correlative duty of sellers of investment products is to provide the relevant information. What’s more, in order for investors to make sound decisions, the seller’s information has to be understandable, accessible, and accurate.”

To more closely match the theory of a well ordered market with today’s reality, the SEC is currently pursuing four key initiatives to improve the quality and usefulness of disclosure for individual investors, he noted. These four initiatives are: moving from boilerplate legalese to plain English in every document intended for retail consumption; moving from long, hard-to-read disclosure documents to easy-to-navigate Web pages that let investors click through to find what they want;
reducing the complexity of accounting rules and regulations; and, focusing our anti-fraud efforts on scams that target older Americans.

Cox noted that empowering investors doesn’t just mean better access to information — it also means access to better information. “Even though they are nominally written in English, the disclosure in some documents that are provided to investors is often so full of legal jargon and boilerplate disclosure that it can actually obscure important information,” he said.

“Convoluted language and disclosure in footnotes may serve lawyers and insurance companies, but it doesn’t improve an investor’s ability to understand the most important facts about a particular investment,” Cox added.

He singled out executive compensation as particularly confusing disclosure. So, three months ago, the commission voted unanimously to propose an overhaul of the executive compensation rules.

Cox also pledged to advance the cause of plain language disclosure, “so that ultimately every communication aimed at retail investors is so free of jargon and legalese”. He also stressed the use of interactive data to make disclosure more user friendly.

In terms of accounting rules, it is systematically re-addressing specific accounting standards that do not provide the most relevant and comparable financial information; codifying Generally Accepted Accounting Principles to provide a single, easily accessible source for all of GAAP; trying to stem the proliferation of new accounting pronouncements from multiple sources; and, strengthening the existing conceptual framework for GAAP in order to provide a more solid and consistent foundation for standards in the future.

“Making financial reporting more user-friendly goes far beyond the work of the FASB. Weeding out the counter-productive complexity that has crept into our financial reporting will require the concerted effort of the SEC, the FASB, the PCAOB, and every market participant. This cannot be a one-time effort; we will have to commit for the long term. But it will be well worth it,” he stressed.

Another priority is education to help protect seniors against financial fraud, and bringing enforcement actions specifically aimed at protecting elderly investors.