Home Finance Big Private Companies To Disclose More Info: Says Wall Street’s Watchdog

Big Private Companies To Disclose More Info: Says Wall Street’s Watchdog

The Securities and Exchange Commission is seeking more transparency, and while it primarily targets hedge funds and private equity firms, other public and private organizations will not be immune. It’s a project about which the organization has been vocal for some time.

Last October, SEC Commissioner Allison Herren Lee expressed worry about the absence of sufficient clarity at unicorns (companies valued at least $1 billion), decacorns ($10 billion), and hectors ($100 billion) companies.

According to CB Insights, a data and consulting organization, there are approximately 1,000 unicorns on the planet today. This is a huge increase from Lee’s estimate of 39 unicorns in 2013.

Many of the regulations being pushed by the SEC are aimed at large private enterprises, private equity firms, or hedge funds. However, this does not mean that small and midsize enterprises are immune from the agency’s scrutiny, especially since private firms are progressively upon that agency’s radar.

If the agency had its way, comprehensive transparency precedents could acquire traction. In some cases, the agency’s considerations for large enterprises may also apply to small businesses.

The SEC is seeking clarification in three areas that could affect small businesses:

Private Markets in the ‘Dark’

In the backdrop of the stock market crisis that triggered the Great Depression, the Securities and Exchange Commission (SEC) was established in 1934 to supervise Wall Street. It generally regulates publicly traded firms, although it also has jurisdiction over private companies.

As “more and more of the wealth in private markets originates from pension schemes, mutual funds, as well as other institutions,” Lee highlighted that the institutional investors might be vulnerable to dangers arising from a lack of transparency.

“Because more funding is now being generated in private markets, a growing sector of the US economy is becoming black,” she noted.

The agency intends to uncover the curtain that hides the identities of some of these huge corporations’ investors. However, it is ambiguous where the organization will pull the line to determine what constitutes a significant corporation subject to greater transparency regulations.

Environmental Information

The SEC has also been exploring environmental regulations. The Biden administration is focused on climate change, particularly in terms of lowering greenhouse gas (GHG) outputs. Biden has set a target for the United States to achieve net-zero emissions by 2050 since becoming an office.

More firms are having to bear their environmental obligations by reducing emissions as environmental, social, & corporate governance (ESG) principles become more widely adopted.

Emission admissions may fall into one of three categories. Scope 1 refers to a company’s primary GHG emissions, whereas scope 2 refers to a company’s indirect GHG emissions, which are typically related to energy or heating and cooling.

Scope 3 emissions are associated with entities other than a company’s direct ownership, such as a third-party supplier. It’s also the one that’s almost certain to irritate businesses the most: Scope 3 emissions often account for the majority of a company’s total emissions, as per the Environmental Protection Agency.

Transparency of Information

Another topic on the SEC’s agenda is cybersecurity.

As the number and severity of cybersecurity attacks rise, the government is aiming to tighten its grip on how businesses manage and disclose breaches.

“We at the SEC are striving to strengthen cybersecurity posture & resiliency of our registrants,” stated SEC Chairman Gary Gensler this week.

Gensler stated he asked staff to make recommendations for a regulation titled Regulation Systems Compliance and Integrity, which requires entities to test their systems regularly and back up their data, among other things.

In the future, public firms may be required to disclose attacks or information leakage that expose personally identifiable information (PII).

There can be a cascade effect if the SEC seeks stronger data disclosure from the firms it regulates, reports Inc.com


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