Proposed legislation, the Improving Disclosure for Investors Act, would require the Securities and Exchange Commission to allow certain registrants to send electronic disclosures to investors instead of paper disclosures. The bill aims to build off an SEC proposal which would require certain registrants to submit disclosures to the SEC electronically, but not to investors.

The bill was proposed yesterday by Representative Bill Huizenga, R-Michigan, and is co-sponsored by House members Bryan Steil, R-Wisconsin; Jake Auchincloss, D-Massachusetts; and Wiley Nickel, D-North Carolina.

A spokesperson for Huizenga’s office confirmed that the primary difference between the legislation and the SEC’s rule proposal is the legislation applies to disclosures to investors, whereas the proposal applies to disclosures to the SEC.

If passed, the bill would require the SEC to create rules that allow, but do not require, investment companies, business development companies, brokers, dealers and municipal securities dealers to disclose their prospectuses, semiannual and annual reports, account statements and proxy statements to their investors electronically.

The bill would require the SEC to issue rules that provide for an initial paper communication informing the investor of the electronic delivery and an annual paper notice for two years informing them of their right to opt out of electronic delivery. The SEC would also be charged with requiring the registrant to enact policies to identify and fix failed electronic disclosures and provide a mechanism for opting out.

If the SEC did not make regulations to this effect within one year of the bill’s passage, the law would take effect anyway, and covered entities would take the law as written for guidance on electronic disclosure.

According to a press release from Huizenga’s office, “the SEC currently permits electronic delivery of certain documents under the federal securities laws,” but this process is “opt-in” rather than opt-out.

The SEC Proposal

Last week, the SEC proposed requiring certain registrants to file disclosures to the SEC using the electronic EDGAR system. According to the SEC’s press release:

“The proposed amendments would require the electronic filing, submission, or posting of certain forms, filings, and other submissions that national securities exchanges, national securities associations, clearing agencies, broker-dealers, security-based swap dealers, and major security-based swap participants make with the Commission.”

The comment period for this proposal will stay open until May 22 or 30 days after its entry into the Federal Register, whichever is later.

SEC Chairman Gary Gensler said in a statement that the proposal “would require entities under the Exchange Act to file electronically a range of annual and quarterly forms currently filed in paper. For example, brokers and other filers would need to submit electronically their annual audit filings and risk assessment reports. Streamlining the Commission’s filing and processing, this also would help us more quickly analyze filings to ensure compliance with Congress’s laws and our rules.”

SEC Commissioner Mark Uyeda supported the proposal and invited public comments on its specifics, saying, “The list of rules and forms affected is long and the Commission may not have gotten this transformation exactly right. For that reason, the assistance of investors and other stakeholders in providing us with their comments will be important.”