Failings of US Disclosure-Based Regulation

Abstract

Disclosure underpins the US approach to regulating securities markets, and US policymakers have tended to respond to corporate and systemic crises by strengthening disclosure requirements.

US disclosure-based regulation, however, suffers from two critical failings. First, it lacks coherence in that shareholder rights are presently too weak to compensate for the hands-off regulatory approach. Second, disclosure has been deployed excessively as a regulatory tool, resulting in inundation of information.

To remedy these deficiencies, US policymakers should support current efforts to strengthen shareholder rights so that investors can truly hold boards accountable. In addition, regulators should periodically review the continuing relevance of existing disclosure requirements and compel companies to segment disclosures by tiers, provide summaries, and limit the length of discussion. US policymakers could also bolster the SEC’s authority to impose substantive regulation so that it would be less reliant on disclosure to regulate problematic conduct.

Note: This op-ed was drawn from a fuller article entitled "A call to reform US disclosure-based regulation" (available at http://ssrn.com/abstract=1556542).

Keywords: Disclosure, Transparency, Securities Regulation, Corporate Governance, Shareholder Rights

JEL Classification: G30, G34, G38, K22