Companies disclosing Brexit-related risk factors

Brexit-related disclosure are becoming commonplace in filings with the US Securities and Exchange Commission (SEC).

An alert issued by Skadden reveals that in the two-month period following the UK referendum, 400 SEC-registered public companies disclosed Brexit-related risk factors in their quarterly reports, while at least 35 companies disclosed Brexit-related risk factors in registration statements filed with the SEC. The law firm points out that this does not include disclosure in confidential registration statements submitted to the SEC. 

Areas of concern

The law firm points out four main areas of concern for companies: exchange rates, the economic environment, political uncertainty and legal and regulatory risk. It advises companies to: 

• continuously evaluate the exposure of the company to the UK and EU markets, and exposure to currency movements relative to the pound sterling and euro; 

• monitor any guidance that may be provided by the SEC on Brexit disclosure;

• carefully monitor the economic and political situation surrounding the referendum as well as any decisions made by the UK government, other European governments, the Bank of England and the European Central Bank; 

• periodically review, amend and update Brexit-related risk factors to ensure that such disclosure is not out of date, misleading or overly generic;

• review disclosure in Management’s Discussion and Analysis of Financial Condition and Results of Operations for Brexit impact on the company’s liability and sources of capital; 

• ensure that there is a clear link between Brexit and any discussion of the risks or effects of Brexit on operating or financial performance; 

• ensure that the company’s forward-looking statements disclosure is harmonised with its discussion of Brexit-related risks and other forward-looking Brexit disclosure; 

• and tailor any risks disclosed to the risks specific to the company and industry, and avoid any boilerplate risk factor disclosure.