Conformed to Federal Register version

SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 229, 232, 239, 240, and 249

[Release Nos. 33-11216; 34-97989; File No. S7-09-22]

RIN 3235-AM89

Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure

AGENCY: Securities and Exchange Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange Commission (“Commission”) is adopting new rules

to enhance and standardize disclosures regarding cybersecurity risk management, strategy,

governance, and incidents by public companies that are subject to the reporting requirements of

the Securities Exchange Act of 1934. Specifically, we are adopting amendments to require

current disclosure about material cybersecurity incidents. We are also adopting rules requiring

periodic disclosures about a registrant’s processes to assess, identify, and manage material

cybersecurity risks, management’s role in assessing and managing material cybersecurity risks,

and the board of directors’ oversight of cybersecurity risks. Lastly, the final rules require the

cybersecurity disclosures to be presented in Inline eXtensible Business Reporting Language

(“Inline XBRL”).

DATES: Effective date: The amendments are effective September 5, 2023.

Compliance dates: See Section II.I (Compliance Dates).

FOR FURTHER INFORMATION CONTACT: Nabeel Cheema, Special Counsel, at (202)

551-3430, in the Office of Rulemaking, Division of Corporation Finance; and, with respect to the

application of the rules to business development companies, David Joire, Senior Special

1
Counsel, at (202) 551-6825 or [email protected], Chief Counsel’s Office, Division of Investment

Management, U.S. Securities and Exchange Commission, 100 F Street NE, Washington, DC

20549.

SUPPLEMENTARY INFORMATION: We are adopting amendments to:

Commission Reference CFR Citation

(17 CFR)
Regulation S-K §§ 229.10 through 229.1305
Items 106 and 601 §§ 229.106 and 229.601
Regulation S-T §§ 232.10 through 232.903
Rule 405 § 232.405
Securities Act of 1933 Form S-3 § 239.13
(“Securities Act”) 1
Securities Exchange Act of 1934 Rule 13a-11 § 240.13a-11
(“Exchange Act”) 2
Rule 15d-11 § 240.15d-11
Form 20-F § 249.220f
Form 6-K § 249.306
Form 8-K § 249.308
Form 10-K § 249.310

1
15 U.S.C. 77a et seq.
2
15 U.S.C. 78a et seq.

2
 Table of Contents

I. Introduction and Background ................................................................................................. 5

II. Discussion of Final Amendments ......................................................................................... 13
A. Disclosure of Cybersecurity Incidents on Current Reports ........................................... 13
1. Proposed Amendments ................................................................................................. 13
2. Comments ..................................................................................................................... 16
3. Final Amendments ........................................................................................................ 27
B. Disclosures about Cybersecurity Incidents in Periodic Reports .................................... 46
1. Proposed Amendments ................................................................................................. 46
2. Comments ..................................................................................................................... 48
3. Final Amendments ........................................................................................................ 50
C. Disclosure of a Registrant’s Risk Management, Strategy and Governance Regarding
Cybersecurity Risks .................................................................................................................. 53
1. Risk Management and Strategy .................................................................................... 53
a. Proposed Amendments ........................................................................................... 53
b. Comments ............................................................................................................... 56
c. Final Amendments .................................................................................................. 60
2. Governance ................................................................................................................... 65
a. Proposed Amendments ........................................................................................... 65
b. Comments ............................................................................................................... 67
c. Final Amendments .................................................................................................. 68
3. Definitions..................................................................................................................... 71
a. Proposed Definitions ............................................................................................... 71
b. Comments ............................................................................................................... 72
c. Final Definitions ..................................................................................................... 75
D. Disclosure Regarding the Board of Directors’ Cybersecurity Expertise ....................... 81
1. Proposed Amendments ................................................................................................. 81
2. Comments ..................................................................................................................... 82
3. Final Amendments ........................................................................................................ 85
E. Disclosure by Foreign Private Issuers............................................................................ 85
1. Proposed Amendments ................................................................................................. 85
2. Comments ..................................................................................................................... 86
3. Final Amendments ........................................................................................................ 87
F. Structured Data Requirements ....................................................................................... 88
1. Proposed Amendments ................................................................................................. 88
2. Comments ..................................................................................................................... 88
3. Final Amendments ........................................................................................................ 88
G. Applicability to Certain Issuers ..................................................................................... 89
1. Asset-Backed Issuers .................................................................................................... 89
2. Smaller Reporting Companies ...................................................................................... 91
H. Need for New Rules and Commission Authority .......................................................... 93
I. Compliance Dates ........................................................................................................ 107
III. OTHER MATTERS............................................................................................................ 107
IV. ECONOMIC ANALYSIS .................................................................................................. 108
A. Introduction .................................................................................................................. 108

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 B. Economic Baseline....................................................................................................... 112
1. Current Regulatory Framework .................................................................................. 112
2. Affected Parties ........................................................................................................... 117
C. Benefits and Costs of the Final Rules .......................................................................... 118
1. Benefits ....................................................................................................................... 119
a. More Timely and Informative Disclosure............................................................. 119
b. Greater Uniformity and Comparability................................................................. 130
2. Costs............................................................................................................................ 134
3. Indirect Economic Effects........................................................................................... 143
D. Effects on Efficiency, Competition, and Capital Formation........................................ 145
E. Reasonable Alternatives............................................................................................... 146
1. Website Disclosure ..................................................................................................... 146
2. Disclosure through Periodic Reports .......................................................................... 147
3. Exempt Smaller Reporting Companies ....................................................................... 148
V. PAPERWORK REDUCTION ACT ................................................................................... 150
A. Summary of the Collections of Information ................................................................ 150
B. Summary of Comment Letters and Revisions to PRA Estimates ................................ 151
C. Effects of the Amendments on the Collections of Information ................................... 152
D. Incremental and Aggregate Burden and Cost Estimates for the Final Amendments .. 154
VI. FINAL REGULATORY FLEXIBILITY ANALYSIS ...................................................... 158
A. Need for, and Objectives of, the Final Amendments ................................................... 158
B. Significant Issues Raised by Public Comments ........................................................... 158
1. Estimate of Affected Small Entities and Impact to Those Entities ............................. 160
2. Consideration of Alternatives ..................................................................................... 162
C. Small Entities Subject to the Final Amendments ........................................................ 165
D. Projected Reporting, Recordkeeping, and other Compliance Requirements ............... 165
E. Agency Action to Minimize Effect on Small Entities ................................................. 166
Statutory Authority ..................................................................................................................... 169

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I. Introduction and Background

On March 9, 2022, the Commission proposed new rules, and rule and form amendments,

to enhance and standardize disclosures regarding cybersecurity risk management, strategy,

governance, and cybersecurity incidents by public companies that are subject to the reporting

requirements of the Exchange Act. 3 The proposal followed on interpretive guidance on the

application of existing disclosure requirements to cybersecurity risk and incidents that the

Commission and staff had issued in prior years.

In particular, in 2011, the Division of Corporation Finance issued interpretive guidance

providing the Division’s views concerning operating companies’ disclosure obligations relating

to cybersecurity (“2011 Staff Guidance”). 4 In that guidance, the staff observed that “[a]lthough

no existing disclosure requirement explicitly refers to cybersecurity risks and cyber incidents, a

number of disclosure requirements may impose an obligation on registrants to disclose such risks

and incidents,” and further that “material information regarding cybersecurity risks and cyber

incidents is required to be disclosed when necessary in order to make other required disclosures,

in light of the circumstances under which they are made, not misleading.” 5 The guidance pointed

specifically to disclosure obligations under 17 CFR 229.503 (Regulation S-K “Item 503(c)”)

(Risk factors) (since moved to 17 CFR 229.105 (Regulation S-K “Item 105”)), 17 CFR 229.303

(Regulation S-K “Item 303”) (Management’s discussion and analysis of financial condition and

results of operations), 17 CFR 229.101 (Regulation S-K “Item 101”) (Description of business),

17 CFR 229.103 (Regulation S-K “Item 103”) (Legal proceedings), and 17 CFR 229.307

3
See Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure, Release No. 33-11038
(Mar. 9, 2022) [87 FR 16590 (Mar. 23, 2022)] (“Proposing Release”).
4
See CF Disclosure Guidance: Topic No. 2—Cybersecurity (Oct. 13, 2011), available at
https://www.sec.gov/divisions/corpfin/guidance/cfguidance-topic2.htm.
5
Id.

5
(Disclosure controls and procedures), as well as to Accounting Standards Codifications 350-40

(Internal-Use Software), 605-50 (Customer Payments and Incentives), 450-20 (Loss

Contingencies), 275-10 (Risks and Uncertainties), and 855-10 (Subsequent Events). 6

In 2018, “[i]n light of the increasing significance of cybersecurity incidents,” the

Commission issued interpretive guidance to reinforce and expand upon the 2011 Staff Guidance

and also address the importance of cybersecurity policies and procedures, as well as the

application of insider trading prohibitions in the context of cybersecurity (“2018 Interpretive

Release”). 7 In addition to discussing the provisions previously covered in the 2011 Staff

Guidance, the new guidance addressed 17 CFR 229.407 (Regulation S-K “Item 407”) (Corporate

Governance), 17 CFR Part 210 (“Regulation S-X”), and 17 CFR Part 243 (“Regulation FD”). 8

The 2018 Interpretive Release noted that companies can provide current reports on Form 8-K

and Form 6-K to maintain the accuracy and completeness of effective shelf registration

statements, and it also advised companies to consider whether it may be appropriate to

implement restrictions on insider trading during the period following an incident and prior to

disclosure. 9

As noted in the Proposing Release, current disclosure practices are varied. For example,

while some registrants do report material cybersecurity incidents, most typically on Form 10-K,

review of Form 8-K, Form 10-K, and Form 20-F filings by staff in the Division of Corporation

Finance has shown that companies provide different levels of specificity regarding the cause,

scope, impact, and materiality of cybersecurity incidents. Likewise, staff has also observed that,

6
Id.
7
See Commission Statement and Guidance on Public Company Cybersecurity Disclosures, Release No. 33-
10459 (Feb. 21, 2018) [83 FR 8166 (Feb. 26, 2018)], at 8167.
8
Id.
9
Id.

6
while the majority of registrants that are disclosing cybersecurity risks appear to be providing

such disclosures in the risk factor section of their annual reports on Form 10-K, the disclosures

are sometimes included with other unrelated disclosures, which makes it more difficult for

investors to locate, interpret, and analyze the information provided. 10

In the Proposing Release, the Commission explained that a number of trends underpinned

investors’ and other capital markets participants’ need for more timely and reliable information

related to registrants’ cybersecurity than was produced following the 2011 Staff Guidance and

the 2018 Interpretive Release. First, an ever-increasing share of economic activity is dependent

on electronic systems, such that disruptions to those systems can have significant effects on

registrants and, in the case of large-scale attacks, systemic effects on the economy as a whole. 11

Second, there has been a substantial rise in the prevalence of cybersecurity incidents, propelled

by several factors: the increase in remote work spurred by the COVID-19 pandemic; the

increasing reliance on third-party service providers for information technology services; and the

rapid monetization of cyberattacks facilitated by ransomware, black markets for stolen data, and

crypto-asset technology. 12 Third, the costs and adverse consequences of cybersecurity incidents

to companies are increasing; such costs include business interruption, lost revenue, ransom

payments, remediation costs, liabilities to affected parties, cybersecurity protection costs, lost

assets, litigation risks, and reputational damage. 13

10
See infra Section IV.A (noting that current cybersecurity disclosures appear in varying sections of companies’
periodic and current reports and are sometimes included with other unrelated disclosures).
11
Proposing Release at 16591-16592. See also U.S. FINANCIAL STABILITY OVERSIGHT COUNCIL, ANNUAL
REPORT (2021), at 168, available at https://home.treasury.gov/system/files/261/FSOC2021AnnualReport.pdf
(finding that “a destabilizing cybersecurity incident could potentially threaten the stability of the U.S. financial
system”).
12
Proposing Release at 16591-16592.
13
Id.

7
 Since publication of the Proposing Release, these trends have continued apace, with

significant cybersecurity incidents occurring across companies and industries. For example,

threat actors repeatedly and successfully executed attacks on high-profile companies across

multiple critical industries over the course of 2022 and the first quarter of 2023, causing the

Department of Homeland Security’s Cyber Safety Review Board to initiate multiple reviews. 14

Likewise, state actors have perpetrated multiple high-profile attacks, and recent geopolitical

instability has elevated such threats. 15 A recent study by two cybersecurity firms found that 98

percent of organizations use at least one third-party vendor that has experienced a breach in the

last two years. 16 In addition, recent developments in artificial intelligence may exacerbate

cybersecurity threats, as researchers have shown that artificial intelligence systems can be

leveraged to create code used in cyberattacks, including by actors not versed in programming. 17

Overall, evidence suggests companies may be underreporting cybersecurity incidents. 18

14
See Department of Homeland Security, Cyber Safety Review Board to Conduct Second Review on Lapsus$
(Dec. 2, 2022), available at https://www.dhs.gov/news/2022/12/02/cyber-safety-review-board-conduct-second-
review-lapsus; see also Tim Starks, The Latest Mass Ransomware Attack Has Been Unfolding For Nearly Two
Months, WASH. POST (Mar. 27, 2023), available at https://www.washingtonpost.com/politics/2023/03/27/latest-
mass-ransomware-attack-has-been-unfolding-nearly-two-months/.
15
See, e.g., Press Release, Federal Bureau of Investigation, FBI Confirms Lazarus Group Cyber Actors
Responsible for Harmony’s Horizon Bridge Currency Theft (Jan. 23, 2023), available at
https://www.fbi.gov/news/press-releases/fbi-confirms-lazarus-group-cyber-actors-responsible-for-harmonys-
horizon-bridge-currency-theft; Alert (AA22-257A), Cybersecurity & Infrastructure Security Agency, Iranian
Islamic Revolutionary Guard Corps-Affiliated Cyber Actors Exploiting Vulnerabilities for Data Extortion and
Disk Encryption for Ransom Operations (Sep. 14, 2022), available at
https://www.cisa.gov/uscert/ncas/alerts/aa22-257a; National Security Agency et al., Joint Cybersecurity
Advisory: Russian State-Sponsored and Criminal Cyber Threats to Critical Infrastructure (Apr. 20, 2022),
available at https://media.defense.gov/2022/Apr/20/2002980529/-1/-1/1/joint_csa_russian_state-
sponsored_and_criminal_cyber_threats_to_critical_infrastructure_20220420.pdf.
16
SecurityScorecard, Cyentia Institute and SecurityScorecard Research Report: Close Encounters of the Third
(and Fourth) Party Kind (Feb 1, 2023), available at https://securityscorecard.com/research/cyentia-close-
encounters-of-the-third-and-fourth-party-kind/.
17
Check Point Research, OPWNAI: AI that Can Save the Day or Hack it Away (Dec. 19, 2022), available at
https://research.checkpoint.com/2022/opwnai-ai-that-can-save-the-day-or-hack-it-away.
18
Bitdefender, Whitepaper: Bitdefender 2023 Cybersecurity Assessment (Apr. 2023), available at
https://businessresources.bitdefender.com/bitdefender-2023-cybersecurity-assessment.

8
 Legislatively, we note two significant developments occurred following publication of

the Proposing Release. First, the President signed into law the Cyber Incident Reporting for

Critical Infrastructure Act of 2022 (“CIRCIA”) 19 on March 15, 2022, as part of the Consolidated

Appropriations Act of 2022. 20 The centerpiece of CIRCIA is the reporting obligation placed on

companies in defined critical infrastructure sectors. 21 Once rules are adopted by the

Cybersecurity & Infrastructure Security Agency (“CISA”), these companies will be required to

report covered cyber incidents to CISA within 72 hours of discovery, and report ransom

payments within 24 hours. 22 Importantly, reports made to CISA pursuant to CIRCIA will remain

confidential; while the information contained therein may be shared across Federal agencies for

cybersecurity, investigatory, and law enforcement purposes, the information may not be

disclosed publicly, except in anonymized form. 23 We note that CIRCIA also mandated the

creation of a “Cyber Incident Reporting Council . . . to coordinate, deconflict, and harmonize

Federal incident reporting requirements” (the “CIRC”), of which the Commission is a member. 24

Second, on December 21, 2022, the President signed into law the Quantum Computing

Cybersecurity Preparedness Act, which directs the Federal Government to adopt technology that

is protected from decryption by quantum computing, a developing technology that may increase

19
Cyber Incident Reporting for Critical Infrastructure Act of 2022, Pub. L. No. 117-103, 136 Stat. 1038 (2022).
20
Consolidated Appropriations Act of 2022, H.R. 2471, 117th Cong. (2022).
21
The sectors are defined in Presidential Policy Directive / PPD-21, Critical Infrastructure Security and Resilience
(Feb. 12, 2013), as: Chemical; Commercial Facilities; Communications; Critical Manufacturing; Dams; Defense
Industrial Base; Emergency Services; Energy; Financial Services; Food and Agriculture; Government Facilities;
Healthcare and Public Health; Information Technology; Nuclear Reactors, Materials, and Waste; Transportation
Systems; Water and Wastewater Systems. Because these sectors encompass some private companies and do not
encompass all public companies, CIRCIA’s reach is both broader and narrower than the set of companies
subject to the rules we are adopting.
22
6 U.S.C. 681b(a)(1).
23
6 U.S.C. 681e. See infra Section II.A.3 for a discussion of why our final rules serve a different purpose and are
not at odds with the goals of CIRCIA.
24
6 U.S.C. 681f.

9
computer processing capacity considerably and thereby render existing computer encryption

vulnerable to decryption. 25

We received over 150 comment letters in response to the Proposing Release. 26 The

majority of comments focused on the proposed incident disclosure requirement, although we also

received substantial comment on the proposed risk management, strategy, governance, and board

expertise requirements. In addition, the Commission's Investor Advisory Committee adopted

recommendations (“IAC Recommendation”) with respect to the proposal, stating that it: supports

the proposed incident disclosure requirement; supports the proposed risk management, strategy,

and governance disclosure requirements; recommends the Commission reconsider the proposed

board of directors’ cybersecurity expertise disclosure requirement; suggests requiring companies

to disclose the key factors they used to determine the materiality of a reported cybersecurity

25
Quantum Computing Cybersecurity Preparedness Act, H.R. 7535, 117th Cong. (2022). More recently, the
White House released a National Cybersecurity Strategy to combat the ongoing risks associated with
cyberattacks. The National Cybersecurity Strategy seeks to rebalance the responsibility for defending against
cyber threats toward companies instead of the general public, and looks to realign incentives to favor long-term
investments in cybersecurity. See Press Release, White House, FACT SHEET: Biden-⁠Harris Administration
Announces National Cybersecurity Strategy (Mar. 2, 2023), available at https://www.whitehouse.gov/briefing-
room/statements-releases/2023/03/02/fact-sheet-biden-harris-administration-announces-national-
cybersecurity-strategy/.
26
The public comments we received are available at https://www.sec.gov/comments/s7-09-22/s70922.htm. On
Mar. 9, 2022, the Commission published the Proposing Release on its website. The comment period for the
Proposing Release was open for 60 days from issuance and publication on SEC.gov and ended on May 9, 2022.
One commenter asserted that the comment period was not sufficient and asked the Commission to extend it by
30 days. See letter from American Chemistry Council (“ACC”). In Oct. 2022, the Commission reopened the
comment period for the Proposing Release and other rulemakings because certain comments on the Proposing
Release and other rulemakings were potentially affected by a technological error in the Commission’s internet
comment form. See Resubmission of Comments and Reopening of Comment Periods for Several Rulemaking
Releases Due to a Technological Error in Receiving Certain Comments, Release No. 33-11117 (Oct. 7, 2022)
[87 FR 63016 (Oct. 18, 2022)] (“Reopening Release”). The Reopening Release was published on the
Commission’s website on Oct. 7, 2022 and in the Federal Register on Oct. 18, 2022, and the comment period
ended on Nov. 1, 2022. A few commenters asserted that the comment period for the reopened rulemakings was
not sufficient and asked the Commission to extend the comment period for those rulemakings. See, e.g., letters
from Attorneys General of the states of Montana et al. (Oct. 24, 2022) and U.S. Chamber of Commerce (Nov. 1,
2022). We have considered all comments received since Mar. 9, 2022 and do not believe an additional
extension of the comment period is necessary.

10
incident; and suggests extending the proposed 17 CFR 229.106 (Regulation S-K “Item 106”)

disclosure requirements to registration statements. 27

We are making a number of important changes from the Proposing Release in response to

comments received. With respect to incident disclosure, we are narrowing the scope of

disclosure, adding a limited delay for disclosures that would pose a substantial risk to national

security or public safety, requiring certain updated incident disclosure on an amended Form 8-K

instead of Forms 10-Q and 10-K for domestic registrants, and on Form 6-K instead of Form 20-F

for foreign private issuers (“FPIs”), 28 and omitting the proposed aggregation of immaterial

incidents for materiality analyses. We are streamlining the proposed disclosure elements related

to risk management, strategy, and governance, and we are not adopting the proposed requirement

to disclose board cybersecurity expertise. The following table summarizes the requirements we

are adopting, including changes from the Proposing Release, as described more fully in Section

II below: 29

27
See U.S. Securities and Exchange Commission Investor Advisory Committee, Recommendation of the Investor
as Owner Subcommittee and Disclosure Subcommittee of the SEC Investor Advisory Committee Regarding
Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure (Sept. 21, 2022), available at
https://www.sec.gov/spotlight/investor-advisory-committee-2012/20220921-cybersecurity-disclosure-
recommendation.pdf. The Investor Advisory Committee also held a panel discussion on cybersecurity at its
Mar. 10, 2022 meeting. See U.S. Securities and Exchange Commission Investor Advisory Committee, Meeting
Agenda (Mar. 10, 2022), available at https://www.sec.gov/spotlight/investor-advisory-committee/iac031022-
agenda.htm.
28
An FPI is any foreign issuer other than a foreign government, except for an issuer that (1) has more than 50
percent of its outstanding voting securities held of record by U.S. residents; and (2) any of the following: (i) a
majority of its executive officers or directors are citizens or residents of the United States; (ii) more than 50
percent of its assets are located in the United States; or (iii) its business is principally administered in the United
States. 17 CFR 230.405. See also 17 CFR 240.3b-4(c).
29
The information in this table is not comprehensive and is intended only to highlight some of the more
significant aspects of the final amendments. It does not reflect all of the amendments or all of the rules and
forms that are affected by the final amendments, which are discussed in detail below. As such, this table should
be read together with the entire release, including the regulatory text.

11
 Item Summary Description of the Disclosure Requirement 30

Regulation S-K Item 106(b) – Registrants must describe their processes, if any, for the
Risk management and assessment, identification, and management of material risks
strategy from cybersecurity threats, and describe whether any risks
from cybersecurity threats have materially affected or are
reasonably likely to materially affect their business strategy,
results of operations, or financial condition.

Regulation S-K Item 106(c) – Registrants must:

Governance - Describe the board’s oversight of risks from cybersecurity
threats.
- Describe management’s role in assessing and managing
material risks from cybersecurity threats.

Form 8-K Item 1.05 – Registrants must disclose any cybersecurity incident they
Material Cybersecurity experience that is determined to be material, and describe the
Incidents material aspects of its:
- Nature, scope, and timing; and
- Impact or reasonably likely impact.

An Item 1.05 Form 8-K must be filed within four business

days of determining an incident was material. A registrant
may delay filing as described below, if the United States
Attorney General (“Attorney General”) determines immediate
disclosure would pose a substantial risk to national security or
public safety.

Registrants must amend a prior Item 1.05 Form 8-K to

disclose any information called for in Item 1.05(a) that was
not determined or was unavailable at the time of the initial
Form 8-K filing.
Form 20-F FPIs must:
- Describe the board’s oversight of risks from cybersecurity
threats.
- Describe management’s role in assessing and managing
material risks from cybersecurity threats.

Form 6-K FPIs must furnish on Form 6-K information on material

cybersecurity incidents that they disclose or otherwise

30
For purposes of this release, the terms “public companies,” “companies,” and “registrants” include issuers that
are business development companies as defined in section 2(a)(48) of the Investment Company Act of 1940,
which are a type of closed-end investment company that is not registered under the Investment Company Act,
but do not include investment companies registered under that Act.

12
 publicize in a foreign jurisdiction, to any stock exchange, or to
security holders.

Overall, we remain persuaded that, as detailed in the Proposing Release: under-disclosure

regarding cybersecurity persists despite the Commission’s prior guidance; investors need more

timely and consistent cybersecurity disclosure to make informed investment decisions; and

recent legislative and regulatory developments elsewhere in the Federal Government, including

those developments subsequent to the issuance of the Proposing Release such as CIRCIA 31 and

the Quantum Computing Cybersecurity Preparedness Act, 32 while serving related purposes, will

not effectuate the level of public cybersecurity disclosure needed by investors in public

companies.

II. Discussion of Final Amendments

A. Disclosure of Cybersecurity Incidents on Current Reports

1. Proposed Amendments

The Commission proposed to amend Form 8-K by adding new Item 1.05 that would

require a registrant to disclose the following information regarding a material cybersecurity

incident, to the extent known at the time of filing:

• When the incident was discovered and whether it is ongoing;

• A brief description of the nature and scope of the incident;

• Whether any data were stolen, altered, accessed, or used for any other unauthorized

purpose;

• The effect of the incident on the registrant’s operations; and

31
Supra note 19.
32
Supra note 25.

13
 • Whether the registrant has remediated or is currently remediating the incident. 33

The Commission clarified in the Proposing Release that this requirement would not extend to

specific, technical information about the registrant’s planned response to the incident or its

cybersecurity systems, related networks and devices, or potential system vulnerabilities in such

detail as would impede the registrant’s response or remediation of the incident. 34

The Commission proposed to set the filing trigger for Item 1.05 as the date the registrant

determines that a cybersecurity incident is material; as with all other Form 8-K items, the

proposed filing deadline would be four business days after the trigger. 35 To protect against any

inclination on the part of a registrant to delay making a materiality determination with a view

toward prolonging the filing deadline, the Commission proposed adding Instruction 1 to Item

1.05 requiring that “a registrant shall make a materiality determination regarding a cybersecurity

incident as soon as reasonably practicable after discovery of the incident.” 36

The Commission affirmed in the Proposing Release that the materiality standard

registrants should apply in evaluating whether a Form 8-K would be triggered under proposed

Item 1.05 would be consistent with that set out in the numerous cases addressing materiality in

the securities laws, including TSC Industries, Inc. v. Northway, Inc., 37 Basic, Inc. v. Levinson, 38

and Matrixx Initiatives, Inc. v. Siracusano, 39 and likewise with that set forth in 17 CFR 230.405

(“Securities Act Rule 405”) and 17 CFR 240.12b-2 (“Exchange Act Rule 12b-2”). That is,

33
Proposing Release at 16595.
34
Id.
35
Id.
36
Id. at 16596.
37
TSC Indus. v. Northway, 426 U.S. 438, 449 (1976).
38
Basic Inc. v. Levinson, 485 U.S. 224, 232 (1988).
39
Matrixx Initiatives v. Siracusano, 563 U.S. 27 (2011).

14
information is material if “there is a substantial likelihood that a reasonable shareholder would

consider it important” 40 in making an investment decision, or if it would have “significantly

altered the ‘total mix’ of information made available.” 41 “Doubts as to the critical nature” of the

relevant information should be “resolved in favor of those the statute is designed to protect,”

namely investors. 42

The Commission explained that the timely disclosure of the information required by

proposed Item 1.05 would enable investors and other market participants to assess the possible

effects of a material cybersecurity incident on the registrant, including any short- and long-term

financial effects or operational effects, resulting in information useful for their investment

decisions. 43 Aligning the deadline for Item 1.05 with that of the other Form 8-K items would, the

Commission maintained, significantly improve the timeliness of cybersecurity incident

disclosures as well as standardize those disclosures. 44 The Commission did not propose to

provide a reporting delay in cases of ongoing internal or external investigations of cybersecurity

incidents. 45 Nevertheless, the Proposing Release requested comment on whether to allow a delay

in reporting where the Attorney General determines that a delay is in the interest of national

security. 46

40
TSC Indus., 426 U.S. at 449.
41
Id.
42
Id. at 448.
43
Proposing Release at 16595.
44
Id.
45
Id. at 16596.
46
Id. at 16598.

15
 2. Comments

Proposed Item 1.05 received a significant amount of feedback from commenters. Some

commenters supported Item 1.05 as proposed, 47 saying that the current level of disclosure on

cybersecurity incidents is inadequate to meet investor needs, and Item 1.05 would remedy this

inadequacy by effectuating the disclosure of decision-useful information. 48 One commenter also

anticipated that Item 1.05 would reduce the risk of insider trading by shortening the time

between discovery of an incident and public disclosure. 49

Other commenters opposed proposed Item 1.05, for several reasons. Some commenters

said that if proposed Item 1.05 were to result in disclosure while an incident is still ongoing, it

would tip off the threat actor and thus make successful neutralization of the incident more

difficult. 50 Commenters also expressed concern that public notice of a vulnerability could draw

attacks from other threat actors who were previously unaware of the vulnerability; and such

attacks could target the disclosing registrant or other companies with the same vulnerability,

particularly if the vulnerability is with a third-party service provider used by multiple

47
See letters from American Institute of CPAs (“AICPA”); Better Markets (“Better Markets”);
BitSight Technologies, Inc. (“BitSight”); California Public Employees’ Retirement System (“CalPERS”);
Crindata, LLC (“Crindata”); Council of Institutional Investors (“CII”); Information Technology and Innovation
Foundation (“ITIF”); North American Securities Administrators Association Inc. (“NASAA”); Professor Jerry
Perullo (“Prof. Perullo”); Professor Preeti Choudhary (“Prof. Choudhary”); Tessa Mishoe (“T. Mishoe”). See
also IAC Recommendation.
48
Id.
49
See letter from Better Markets.
50
See letters from ACC; American Gas Association and Interstate Natural Gas Association of America
(“AGA/INGAA”); BioTechnology Innovation Organization (“BIO”); Bank Policy Institute, American Bankers
Association, and Mid-Size Bank Coalition of America (“BPI et al.”); BSA / The Software Alliance (“BSA”);
Business Roundtable (“Business Roundtable”); Canadian Bankers Association (“CBA”); Edison Electric
Institute (“EEI”); Energy Infrastructure Council (“EIC”); Federation of American Hospitals (“FAH”); Financial
Services Sector Coordinating Council (“FSSCC”); Information Technology Industry Council (“ITI”); LTSE
Services, Inc. (“LTSE”); National Association of Manufacturers (“NAM”); National Defense Industrial
Association (“NDIA”); Quest Diagnostics Incorporated (“Quest”); Rapid7, Inc. (“Rapid7”); Society for
Corporate Governance (“SCG”); Securities Industry and Financial Markets Association (“SIFMA”);
TransUnion; R Street Institute (“R Street”); U.S. Chamber of Commerce (“Chamber”).

16
companies. 51 Some of these commenters objected specifically to the requirement in Item 1.05 to

disclose whether remediation has occurred, stating that this information could assist threat actors

in their targeting or invite further targeted attacks, 52 while others more generally stated that the

Item 1.05 disclosure would be overly detailed, such that it would give a road map to threat actors

for planning attacks. 53 One commenter argued that the prospect of possibly having to file an

Item 1.05 Form 8-K could chill threat information sharing within industries, because companies

would fear that any cybersecurity risk information they share could later be used to question their

disclosure decisions. 54

Some of the commenters that disagreed with the level of disclosure required by proposed

Item 1.05 recommended that the Commission narrow the disclosure requirements of the rule.

For example, one such commenter advised dropping the proposed requirement to disclose “when

the incident was discovered,” arguing that this detail may cause confusion, particularly where an

incident was detected some time ago but a significant aspect rendering it material surfaced only

recently. 55 Another commenter opined that “whether the registrant has remediated or is currently

remediating the incident” is duplicative of “whether it is ongoing,” so either of the two could be

51
See letters from ABA Committee on Federal Regulation of Securities (“ABA”); Aerospace Industries
Association of America (“AIA”); Alliance for Automotive Innovation (“Auto Innovators”); AGA/INGAA;
American Property Casualty Insurance Association (“APCIA”); BPI et al.; BSA; Business Roundtable; CBA;
Chamber; Cellular Telecommunications and Internet Assoc. (“CTIA”); Cybersecurity Coalition; EEI; EIC;
Empire State Realty Trust, Inc. (“Empire”); Enbridge Inc. (“Enbridge”); FSSCC; Internet Security Alliance;
ITI; Microsoft Corporation (“Microsoft”); NDIA; PPG Industries, Inc. (“PPG”); PricewaterhouseCoopers LLP
(“PWC”); Rapid7; R Street; SCG; SIFMA; U.S. Senator Rob Portman (“Sen. Portman”); Virtu Financial
(“Virtu”).
52
See letters from ABA; AGA/INGAA; BPI et al.; Cybersecurity Coalition; Empire; Enbridge; PWC; SIFMA;
SCG; Virtu.
53
See letters from AGA/INGAA; BSA; EIC; ITI; PPG.
54
See letter from Consumer Technology Association (“CTA”).
55
See letter from Prof. Perullo.

17
eliminated. 56 One commenter contended that a materiality filter should be added to the details

required by Item 1.05, such that companies would have to disclose only details that themselves

are material, rather than immaterial details of a material incident. 57

By contrast, there were also commenters that recommended expanding the disclosure

requirements in the proposed rule. In this regard, some commenters recommended requiring that

registrants disclose asset losses, intellectual property losses, and the value of business lost due to

the incident. 58 Other suggestions included requiring that incidents be quantified as to their

severity and impact via standardized rating systems, and that registrants disclose how they

became aware of the incident, as this may shed light on the effectiveness of a company’s

cybersecurity policies and procedures. 59 Additionally, commenters suggested banning trading by

insiders during the time between the materiality determination and disclosure of the incident. 60

Commenters provided reactions to the application of Item 1.05 to incidents connected

with third-party systems. A number of commenters contended that registrants should be exempt

from having to disclose cybersecurity incidents in third-party systems they use because of their

reduced control over such systems. 61 Similarly, several commenters advocated for a safe harbor

for information disclosed about third-party systems, given registrants’ reduced visibility into

such systems. 62 A few commenters suggested a longer reporting timeframe for third-party

56
See letter from ABA.
57
See letter from ITI.
58
See letters from Profs. Rajgopal & Sharpe; PWC.
59
See letters from BitSight; Cloud Security Alliance (“CSA”).
60
See letter from Prof. Mitts.
61
See letters from ABA; AIA; APCIA; Business Roundtable; Cybersecurity Coalition; Chamber; EIC; FAH; ISA;
ITI; NAM; NDIA; National Multifamily Housing Council and National Apartment Association (“NMHC”);
Paylocity; SIFMA.
62
See letters from Chevron Corporation (“Chevron”); APCIA; BPI et al.; BIO; CSA; Financial Executive
International’s Committee on Corporate Reporting (“FEI”); ITI; ISA; NMHC; SIFMA.

18
incidents, because the registrant may be dependent on the third party for information (which may

not be provided in a timely manner), and to avoid harm to other companies reliant on the same

third party. 63 Commenters also recommended that Item 1.05 be phased in over a longer period of

time with respect to third-party incidents, to give registrants time to develop information sharing

processes with their third-party service providers. 64

Commenters also requested guidance or otherwise raised concerns where the proposed

requirements might trigger disclosures by third-party service providers. A commenter requested

clarity on whether an incident should be disclosed by the third-party service provider registrant

that owns the affected system or the customer registrant that owns the affected information, or

both. 65 And two commenters argued that third-party service providers should simply pass along

information to their end customers, who would then make their own materiality determination

and disclose accordingly; this should particularly be the case, a commenter said, where an attack

on a third-party data center results in a data breach for an end customer but does not affect the

services the data center provides. 66

The proposed timing of incident disclosure also received a significant level of public

comment. For example, a few commenters said the level of detail required by Item 1.05 is

impractical to produce in the allotted time. 67 Other commenters said that the proposed deadline

would lead to the disclosure of tentative, unclear, or potentially inaccurate information that is not

63
See letters from ABA; R Street.
64
See letters from Business Roundtable; Deloitte & Touche LLP (“Deloitte”).
65
See letter from Business Roundtable.
66
See letters from BSA; ITI.
67
See letters from ABA; NMHC; Quest.

19
decision-useful to investors, 68 resulting in the market mispricing the underlying securities. 69

Commenters also argued that Item 1.05 is qualitatively different from all other Form 8-K items

in that the trigger for Item 1.05 is largely outside the company’s control. 70 Some commenters

worried the proposed deadline would lead to disclosure of “false positives,” that is, incidents that

appear material at first but later on with the emergence of more information turn out not to be

material. 71

Commenters suggested a range of alternative reporting deadlines for Item 1.05. A

common suggestion was to modify the measurement date from the determination of materiality

to another point in the lifecycle of the incident when the incident is no longer a threat to the

registrant—commenters variously termed this as “containment,” “remediation,” “mitigation,”

and comparable terms. 72 One commenter recommended conditioning a reporting delay on the

registrant being actively engaged in containing the incident and reasonably believing that

containment can be completed in a timely manner. 73 Similarly, several commenters

recommended that the rule allow for a delay in providing Item 1.05 disclosure based on a

registrant’s assessment of the potential negative consequences of public disclosure, using a

68
See letters from ABA; ACC; AIA; Auto Innovators; American Investment Council (“AIC”); BIO; Business
Roundtable; CBA; Chamber; Confidentiality Coalition; CTIA; Davis Polk & Wardwell LLP (“Davis Polk”);
Debevoise & Plimpton (“Debevoise”); Federated Hermes; FSSCC; Microsoft; NAM; Nasdaq Stock Market,
LLC (“Nasdaq”); NDIA; Quest; SCG; TransUnion; Wilson Sonsini Goodrich & Rosati (“Wilson Sonsini”);
Virtu.
69
See letters from ABA; ACC; AIA; AIC; BIO; BPI et al.; Business Roundtable; Confidentiality Coalition; Davis
Polk; ISA; Nasdaq; PPG; Quest; Rapid7; SCG; Sen. Portman; SIFMA; Virtu.
70
See letters from CTIA; Debevoise; EIC; LTSE; New York City Bar Association (“NYC Bar”); Quest.
71
See letters from LTSE; PPG; SCG.
72
See letters from American Council of Life Insurers (“ACLI”); BCE Inc., Rogers Communications Inc., TELUS
Corporation (“BCE”); BPI et al.; Business Roundtable; Chamber; CTA; Cybersecurity Coalition; Empire; FAH;
Federated Hermes; FSSCC; ISA; ITI; NAM; Nasdaq; NDIA; NMHC; NYSE Group (“NYSE”); Quest; Rapid7;
Sen. Portman; SCG; SIFMA; SM4RT Secure LLC (“SM4RT Secure”); TransUnion.
73
See letter from Rapid7.

20
variety of measures they suggested. 74 Another suggestion was to replace the proposed deadline

with an instruction to disclose material incidents “without unreasonable delay.” 75

Some commenters recommended instead increasing the number of days between the

reporting trigger and the reporting deadline. A few commenters recommended adding one

business day to make the deadline five business days; 76 one noted this would result in every

registrant having at least a full calendar week to gather information and prepare the Form 8-K. 77

Another commenter recommended a deadline of 15 business days, along with a cure period to

allow registrants a defined period of time to fix potential reporting mistakes. 78 A few

commenters recommended a 30-day deadline, 79 with their choice of 30 days tending to be a

proxy for some other factor, such as containment or remediation, 80 or state notification

requirements. 81

74
See letters from BSA (suggesting a “tailored, balancing test”); EEI (advocating delay “to the extent… the
registrant in good faith concludes that its disclosure will expose it or others to ongoing or additional risks of a
cybersecurity incident”); EIC; Microsoft (requesting that companies be allowed to “manage the timing” of
disclosure “when compelling conditions exist such that premature disclosure would result in greater harm to the
company, its investors, or the national digital ecosystem”); Nareit and The Real Estate Roundtable (“Nareit”)
(stating delay should be permitted where disclosure “would exacerbate injury to the company and/or its
shareholders”); SIFMA (advocating a “‘responsible disclosure’ exception” that applies “where disclosure of a
cyber incident or vulnerability could have a more damaging effect than delayed disclosure”); Wilson Sonsini
(stating “the Commission should allow board members to decide to delay reporting if doing so could cause
material harm to the company”).
75
See letters from CTIA; National Restaurant Association (“NRA”).
76
See letters from AIC; Debevoise; NYC Bar.
77
See letter from AIC.
78
See letter from R Street.
79
See letters from APCIA; Hunton Andrews Kurth, LLP (“Hunton”); Rapid7.
80
See letters from APCIA (“[w]e believe that permitting a registrant to delay the filing for a short period of time
strikes an appropriate balance between timely disclosure to shareholders and an opportunity for a registrant to
achieve the best resolution for itself and its shareholders”); Rapid7 (“[i]n Rapid7’s experience, the vast majority
of incidents can be contained and mitigated within that time frame [30 days]”).
81
See letters from APCIA (“[a]llowing up to 30 days for disclosure would also bring the SEC’s proposal in line
with data breach disclosure requirements at the state level”); Hunton (“[w]hile state data breach notification
laws vary from state to state, 30 days from the cybersecurity incident is the earliest date any state requires that
notification to affected persons be made”).

21
 Several commenters recommended addressing the timing concerns by replacing current

reporting on Form 8-K with periodic reporting on Forms 10-Q and 10-K, to allow additional time

to assess an incident’s impact before reporting to markets. 82 In this vein, one commenter likened

cybersecurity incident disclosure to the disclosure of legal proceedings under Regulation S-K

Item 103. 83

A few commenters recommended instead that the materiality trigger be replaced with a

quantifiable trigger; for example, an incident implicating a specified percentage of revenue, or

the costs of an incident exceeding a specified benchmark, could trigger disclosure. 84 Other

commenters advocated for the disclosure trigger to be tied to any legal obligation that forces a

registrant to notify persons outside the company. 85

Commenters also recommended a number of exceptions to the filing deadline. The most

common recommendation was to include a provision allowing for delayed filing where there is

an active law enforcement investigation or the disclosure otherwise implicates national security

or public safety. 86 A representative comment in this vein advanced a provision whereby

registrants may “delay reporting of a cybersecurity incident that is the subject of a bona fide

82
See letters from ABA; Davis Polk; Debevoise; LTSE; NYC Bar; Quest; SCG.
83
See letter from Quest.
84
See letters from BIO; Bitsight; EIC; Paylocity.
85
See letters from ABA; Business Roundtable.
86
See letters from ABA; ACC; ACLI; AGA/INGAA; AIA; AICPA; APCIA; Auto Innovators; Rep. Banks; BPI et
al.; BIO; BSA; Business Roundtable; CBA; Chamber; Chevron; CII; CSA; CTA; CTIA; Cybersecurity
Coalition; Debevoise; EEI; EIC; Empire; Enbridge; FAH; FedEx Corporation (“FedEx”); FEI; FSSCC; Global
Privacy Alliance (“GPA”); Hunton; ISA; ITI; ITIF; Microsoft; NAM; Nareit; NASAA; NDIA; NMHC; NRA;
NYC Bar; Prof. Perullo; Sen. Portman; PPG; PWC; Quest; R Street; Profs. Rajgopal & Sharpe; Rapid7; SCG;
SIFMA; TransUnion; Virtu; USTelecom – The Broadband Association (“USTelecom”); U.S. Chamber of
Commerce & various associations (“Chamber et al.”).

22
investigation by law enforcement,” because such “delay in reporting may not only facilitate such

an investigation, it may be critical to its success.” 87

In calling for a law enforcement delay, associations for industries in critical sectors

emphasized the national security implications of public cybersecurity incident disclosure. For

example, one association explained that disclosure “may alert malicious actors that we have

uncovered their illegal activities in circumstances where our defense and intelligence agencies

wish to keep that information secret.” 88 Likewise, another association pointed out that, in its

industry, companies “are likely to possess some of the nation’s most critical confidential

information, including cybersecurity threat information furnished by government entities, such as

the Federal Bureau of Investigation (FBI), the Department of Homeland Security (DHS), and the

National Security Agency (NSA),” and therefore, disclosure may not be possible. 89

Commenters largely advocated for “a broad law enforcement exception that applies not

only in the interest of national security but also when law enforcement believes disclosure will

hinder their efforts to identify or capture the threat actor.” 90 Many commenters that responded to

the Commission’s request for comment regarding a provision whereby the Attorney General

determines that a delay is in the interest of national security indicated that such a provision

should be more expansive and extend to other law enforcement authorities. 91 One of these

commenters questioned whether the Attorney General would opine on matters “that are under the

ambit of other Federal agencies, such as the Department of Homeland Security, Department of

87
See letter from Debevoise.
88
See letter from AIA.
89
See letter from EEI.
90
See letter from ABA.
91
See letters from BPI et al.; CBA; CSA; Hunton; ITIF; SCG; Wilson Sonsini.

23
State and the Department of Defense.” 92 Another commenter pointed out that “the Department

of Justice is not the primary, or even the lead, organization in the Federal Government for

cybersecurity response, rather the Department of Homeland Security’s Cybersecurity and

Infrastructure Security Agency is often the first call that companies make,” while “[f]or defense

contractors, the Department of Defense is likely to have the highest interest in the timing of an

announcement.” 93 For the financial industry specifically, one suggestion was to permit a delay if

the Federal Reserve, Federal Deposit Insurance Corporation, or Office of the Comptroller of the

Currency finds that disclosure would compromise the safety or soundness of the financial

institution or of the financial system as a whole. 94

Some commenters specifically urged that state law enforcement be included within any

delay provision, 95 and one commenter appeared to contemplate inclusion of foreign law

enforcement. 96 A few commenters advocated for a confidential reporting system, whereby a

registrant would initially file a nonpublic report with the Commission while a law enforcement

investigation is ongoing, and then unseal the report upon the investigation’s completion. 97

A number of commenters provided feedback regarding proposed Instruction 1, which

would have directed registrants to make their materiality determination regarding an incident “as

92
See letter from Hunton. This commenter also questioned whether law enforcement would be inclined to
provide a written determination, particularly within four business days, because in its experience with State data
breach laws, “the relevant state and federal law enforcement agencies seldom (if ever) provide written
instructions when the relevant exception comes into play.”
93
See letter from Wilson Sonsini.
94
See letter from BPI et al. Cf. letter from FSSCC.
95
See, e.g., letter from ITIF.
96
See letter from CBA (stating “the scope of the contemplated exemption is indefensibly narrow, particularly for
registrants with operations outside of the United States . . . there should be an exemption to permit delayed
disclosure upon the request of any competent national, state or local law enforcement authority”).
97
See letters from CSA; Hunton; SCG. See also letter from LTSE (positing the Regulation SCI disclosure
framework as a model for Item 1.05).

24
soon as reasonably practicable after discovery of the incident.” Several commenters

recommended removing the instruction altogether as, in their view, it would place unnecessary

pressure on companies to make premature determinations before they have sufficient

information. 98 Other commenters stated that the instruction is too ambiguous for registrants to

ascertain whether they have complied with it. 99 Conversely, one commenter advised the

Commission not to provide further guidance on the meaning of “as soon as reasonably

practicable,” explaining that doing so would interfere with each registrant’s individual

assessment of what is practicable given its specific context, resulting in pressure to move more

quickly than may be appropriate. 100 Another commenter likewise found that “as soon as

reasonably practicable” is a “reasonable approach” that “provides public companies with the

appropriate degree of flexibility to conduct a thorough assessment while ensuring that the

markets get timely and relevant information.” 101 One commenter recommended a safe harbor for

actions and determinations made in good faith to satisfy Instruction 1 that later turn out to be

mistaken. 102

In response to a request for comment in the Proposing Release, several commenters

recommended registrants be permitted to furnish rather than file an Item 1.05 Form 8-K, so that

filers of an Item 1.05 Form 8-K would not be subject to liability under Section 18 of the

Exchange Act. 103 A significant number of commenters also endorsed the proposal to amend 17

98
See letters from ABA; AGA/INGAA; Federated Hermes; ISA; Paylocity; Quest; SCG.
99
See letter from Center for Audit Quality (“CAQ”); CSA; Institute of Internal Auditors (“IIA”); LTSE; NYC
Bar.
100
See letter from Cybersecurity Coalition.
101
See letter from NASAA.
102
See letter from Nasdaq.
103
See letters from BPI et al.; Business Roundtable; Chevron; CSA; EEI; LTSE; NAM; SCG.

25
CFR 240.13a-11(c) (“Rule 13a-11(c)”) and 17 CFR 240.15d-11(c) (“Rule 15d-11(c)”) under the

Exchange Act to include Item 1.05 in the list of Form 8-K items eligible for a limited safe harbor

from liability under Section 10(b) or 17 CFR 240.10b-5 (“Rule 10b-5”) under the Exchange

Act. 104 Likewise, the proposal to amend General Instruction I.A.3.(b) of Form S-3 and General

Instruction I.A.2 of Form SF-3 to provide that an untimely filing on Form 8-K regarding new

Item 1.05 would not result in loss of Form S-3 or Form SF-3 eligibility received much support. 105

Finally, a number of commenters averred that Item 1.05 would conflict with other

Federal and state cybersecurity reporting or other regulatory regimes. For example, one

commenter stated Item 1.05 would counteract the goals of CIRCIA by requiring public

disclosure of information the act would keep confidential, and went on to assert that CIRCIA

was intended as the primary means for reporting incidents to the Federal Government. 106 Also

related to CIRCIA, a number of commenters urged harmonization of the Commission’s proposal

with forthcoming regulations expected from CISA pursuant to CIRCIA. 107 Several commenters

alleged Item 1.05 would conflict with rules the Department of Health and Human Services

(“HHS”) has adopted pursuant to the Health Insurance Portability and Accountability Act

(“HIPAA”) regarding the reporting of private health information breaches. 108 A few commenters

likewise said Item 1.05 would conflict with the reporting regime set forth in Federal

Communications Commission (“FCC”) regulations for breaches of customer proprietary network

104
See letters from ABA; APCIA; BIO; Business Roundtable; Chevron; CTIA; Cybersecurity Coalition;
Debevoise; EEI; LTSE; NYC Bar; PWC; SCG.
105
See letters from ABA; APCIA; BIO; Business Roundtable; Chevron; CTIA; Cybersecurity Coalition;
Debevoise; EEI; LTSE; NYC Bar; PWC; SCG.
106
See letter from Sen. Portman.
107
See letters from ACC; ACLI; APCIA; BPI et al.; BIO; Confidentiality Coalition; Chamber; CTA; CTIA;
Cybersecurity Coalition; EIC; FEI; FSSCC; Insurance Coalition (“IC”); ISA; ITI; ITIF; Nareit; NAM; NRA; R
Street; SCG; SIFMA; USTelecom.
108
See letters from Chamber; Confidentiality Coalition; FAH; R Street.

26
information. 109 Conflicts were also alleged with regulations and programs of the Department of

Defense (“DOD”), 110 Department of Energy (“DOE”), 111 and Department of Homeland Security

(“DHS”). 112 Commenters called for harmonization of Item 1.05 with regulations issued by

Federal banking regulators, 113 as well as with regulations of the Federal Trade Commission

(“FTC”). 114 Some commenters noted the potential interaction between the proposed rules and

state laws. 115 One commenter noted the McCarran-Ferguson Act, which provides that a state law

preempts a Federal statute if the state law was enacted for the purpose of regulating the business

of insurance and the Federal statute does not specifically relate to the business of insurance. 116

3. Final Amendments

Having considered the comments, we remain convinced that investors need timely,

standardized disclosure regarding cybersecurity incidents materially affecting registrants’

businesses, and that the existing regulatory landscape is not yielding consistent and informative

disclosure of cybersecurity incidents from registrants. 117 However, we are revising the proposal

109
See letters from Chamber; CTIA; USTelecom.
110
See letter from Chamber et al.
111
See letter from EEI.
112
See letter from ACC. This letter additionally alleged conflicts with regulations of the Department of Energy,
Transportation Security Agency, Department of Defense, and Environmental Protection Agency, but did not
explain specifically where those conflicts lie.
113
See letters from FSSCC; Structured Finance Association (“SFA”); SIFMA.
114
See letters from BIO; CTIA.
115
See letters from IC (noting “[a]n important issue will be to ensure harmonized regulation between the federal
government and the several states with proposed or preexisting cybersecurity regulations”); R Street (noting that
state privacy laws “mandate reporting of incidents across very different timelines”); SIFMA (noting that “many
state financial services and/or insurance regulators already require regulated entities certify cybersecurity
compliance”).
116
See letter from IC.
117
As the Commission has previously stated, markets rely on timely dissemination of information to accurately and
quickly value securities. Additional Form 8-K Disclosure Requirements and Acceleration of Filing Date,
Release No. 33-8400 (Mar. 16, 2004) [69 FR 15593 (Mar. 25, 2004)] (“Additional Form 8-K Disclosure
Release”). Congress recognized that the ongoing dissemination of accurate information by issuers about

27
in two important respects in response to concerns raised by commenters. First, we are narrowing

the amount of information required to be disclosed, to better balance investors’ needs and

registrants’ cybersecurity posture. And second, we are providing for a delay for disclosures that

would pose a substantial risk to national security or public safety, contingent on a written

notification by the Attorney General, who may take into consideration other Federal or other law

enforcement agencies’ findings.

As described above, commenters’ criticisms of Item 1.05 generally arose from two

aspects of the proposal: (1) the scope of disclosure; and (2) the timing of disclosure. With

respect to disclosure scope, we note in particular commenter concerns that the disclosure of

certain details required by proposed Item 1.05 could exacerbate security threats, both for the

registrants’ systems and for systems in the same industry or beyond, and could chill threat

information sharing within industries. We agree that a balancing of concerns consistent with our

statutory authority is necessary in crafting Item 1.05 to avoid empowering threat actors with

actionable information that could harm a registrant and its investors. However, we are not

persuaded, as some commenters suggested, 118 that we should forgo requiring disclosure of the

existence of an incident while it is ongoing to avoid risks, such as the risk of tipping off threat

actors. Some companies already disclose material cybersecurity incidents while they are

ongoing and before they are fully remediated, but the timing, form, and substance of those

disclosures are inconsistent. Several commenters indicated both that investors look for

information regarding registrants’ cybersecurity incidents and that current disclosure levels are

themselves and their securities is essential to the effective operation of the markets, and specifically recognized
the importance of current reporting in this regard by requiring that “[e]ach issuer reporting under Section 13(a)
or 15(d) … disclose to the public on a rapid and current basis such additional information concerning material
changes in the financial condition or operations of the issuer … as the Commission determines … is necessary
or useful for the protection of investors and in the public interest.” 15 U.S.C. 78m(l).
118
See supra note 50.

28
inadequate to their needs in making investment decisions. 119 In addition, we note below in

Section IV evidence showing that delayed reporting of cybersecurity incidents can result in

mispricing of securities, and that such mispricing can be exploited by threat actors, employees,

related third parties, and others through trades made before an incident becomes public. 120

Accordingly, we believe it is necessary to adopt a requirement for uniform current reporting of

material cybersecurity incidents.

To that end, and to balance investors’ needs with the concerns raised by commenters, we

are streamlining Item 1.05 to focus the disclosure primarily on the impacts of a material

cybersecurity incident, rather than on requiring details regarding the incident itself. The final

rules will require the registrant to “describe the material aspects of the nature, scope, and timing

of the incident, and the material impact or reasonably likely material impact on the registrant,

including its financial condition and results of operations.” We believe this formulation more

precisely focuses the disclosure on what the company determines is the material impact of the

incident, which may vary from incident to incident. The rule’s inclusion of “financial condition

and results of operations” is not exclusive; companies should consider qualitative factors

alongside quantitative factors in assessing the material impact of an incident. 121 By way of

illustration, harm to a company’s reputation, customer or vendor relationships, or

competitiveness may be examples of a material impact on the company. Similarly, the

possibility of litigation or regulatory investigations or actions, including regulatory actions by

119
See letters from Better Markets; CalPERS; CII.
120
See infra notes 413 and 462.
121
See also Proposing Release at 16596 (stating that “[a] materiality analysis is not a mechanical exercise” and not
solely quantitative, but rather should take into consideration “all relevant facts and circumstances surrounding
the cybersecurity incident, including both quantitative and qualitative factors”).

29
state and Federal Governmental authorities and non-U.S. authorities, may constitute a reasonably

likely material impact on the registrant.

We are not adopting, as proposed, a requirement for disclosure regarding the incident’s

remediation status, whether it is ongoing, and whether data were compromised. While some

incidents may still necessitate, for example, discussion of data theft, asset loss, intellectual

property loss, reputational damage, or business value loss, registrants will make those

determinations as part of their materiality analyses. Further, we are adding an Instruction 4 to

Item 1.05 to provide that a “registrant need not disclose specific or technical information about

its planned response to the incident or its cybersecurity systems, related networks and devices, or

potential system vulnerabilities in such detail as would impede the registrant’s response or

remediation of the incident.” While the Commission provided this assurance in the Proposing

Release, 122 we agree with some commenters that codifying it in the Item 1.05 instructions should

provide added clarity to registrants on the type of disclosure required by Item 1.05.

With respect to commenters’ questions concerning the application of Item 1.05 to

incidents occurring on third-party systems, we are not exempting registrants from providing

disclosures regarding cybersecurity incidents on third-party systems they use, nor are we

providing a safe harbor for information disclosed about third-party systems. While we

appreciate the commenters’ concerns about a registrant’s reduced control over such systems, we

note the centrality of the materiality determination: whether an incident is material is not

contingent on where the relevant electronic systems reside or who owns them. In other words,

we do not believe a reasonable investor would view a significant breach of a registrant’s data as

immaterial merely because the data were housed on a third-party system, especially as

122
Id. at 16595.

30
companies increasingly rely on third-party cloud services that may place their data out of their

immediate control. 123 Instead, as discussed above, materiality turns on how a reasonable investor

would consider the incident’s impact on the registrant.

Depending on the circumstances of an incident that occurs on a third-party system,

disclosure may be required by both the service provider and the customer, or by one but not the

other, or by neither. We appreciate that companies may have reduced visibility into third-party

systems; registrants should disclose based on the information available to them. The final rules

generally do not require that registrants conduct additional inquiries outside of their regular

channels of communication with third-party service providers pursuant to those contracts and in

accordance with registrants’ disclosure controls and procedures. This is consistent with the

Commission’s general rules regarding the disclosure of information that is difficult to obtain. 124

Turning to disclosure timing, we believe that the modifications from the proposed rules

regarding the disclosures called for by Item 1.05 alleviate many of the concerns some

commenters had regarding the proposed disclosure deadline of four business days from the

materiality determination. Because the streamlined disclosure requirements we are adopting are

focused on an incident’s basic identifying details and its material impact or reasonably likely

material impact, the registrant should have the information required to be disclosed under this

rule as part of conducting the materiality determination. For example, most organizations’

materiality analyses will include consideration of the financial impact of a cybersecurity

123
See Deloitte, Global Third-Party Risk Management Survey 2022, at 15, available at
https://www2.deloitte.com/content/dam/Deloitte/uk/Documents/risk/deloitte-uk-global-tprm-survey-report-
2022.pdf (discussing results of a global survey of 1,309 “senior leaders from a variety of organizations”
indicating that “73% of respondents currently have a moderate to high level of dependence on [cloud-service
providers]” and “[t]hat is expected to increase to 88% in the years ahead”).
124
See 17 CFR 230.409 and 17 CFR 240.12b-21, which provide that information need only be disclosed insofar as
it is known or reasonably available to the registrant. Accordingly, we are not providing additional time to
comply with Item 1.05 as it relates to third-party incidents, as requested by some commenters.

31
incident, so information regarding the incident’s impact on the registrant’s financial condition

and results of operations will likely have already been developed when Item 1.05 is triggered. 125

Thus, we believe that the four business day timeframe from the date of a materiality

determination will be workable.

The reformulation of Item 1.05 also addresses the concern among commenters that the

disclosure may be tentative and unclear, resulting in false positives and mispricing in the market.

In the majority of cases, the registrant will likely be unable to determine materiality the same day

the incident is discovered. The registrant will develop information after discovery until it is

sufficient to facilitate a materiality analysis. 126 At that point, we believe investors are best served

knowing, within four business days after the materiality determination, that the incident occurred

and what led management to conclude the incident is material. While it is possible that

occasionally there may be incidents that initially appear material but developments after the

filing of the Item 1.05 Form 8-K reveal to be not material, the alternative of delaying disclosure

beyond the four business day period after a materiality determination has the potential to lead to

far more mispricing and will negatively impact investors making investment and voting

decisions without the benefit of knowing that there is a material cybersecurity incident.

Commenters posited an array of alternative deadlines for the Item 1.05 Form 8-K, as

recounted above. We are not persuaded by commenters’ arguments that disclosure should be

delayed until companies mitigate, contain, remediate, or otherwise diminish the harm of the

incident, because, as discussed above, Item 1.05 does not require disclosure of the types of

125
To the extent any required information is not determined or is unavailable at the time of the required filing,
Instruction 2 to Item 1.05, as adopted, directs the registrant to include a statement to this effect in the Form 8-K
and then file a Form 8-K amendment containing such information within four business days after the registrant,
without unreasonable delay, determines such information or within four business days after such information
becomes available. See infra Section II.B.3.
126
As discussed below, registrants should develop such information without unreasonable delay.

32
details that have the potential to be exploited by threat actors, but rather focuses on the incident’s

material impact or reasonably likely material impact on the registrant. While there may be, as

commenters noted, some residual risk of the disclosure of an incident’s existence tipping off

threat actors, such risk is justified, in our view, by investors’ need for timely information, and

similar risk already exists today with some companies’ current cybersecurity incident disclosure

practices. We are also not persuaded that Item 1.05 is sufficiently different from other Form 8-K

items such that deviating from the form’s four business day deadline following the relevant

trigger would be indicated. While some commenters argued that Item 1.05 is qualitatively

different from all other Form 8-K filings in that its trigger is largely outside the company’s

control, we disagree because other Form 8-K items may also be triggered unexpectedly, such as

Item 4.01 (Changes in Registrant’s Certifying Accountants) and Item 5.02 (Departure of

Directors or Principal Officers). And as compared to those items, the information needed for

Item 1.05 may be further along in development when the filing is triggered, whereas, for

example, a company may have no advance warning that a principal officer is departing.

With respect to the five business day deadline suggested by a few commenters to allow

registrants a full calendar week from the materiality determination to the disclosure, we note that

in the majority of cases registrants will have had additional time leading up to the materiality

determination, such that disclosure becoming due less than a week after discovery should be

uncommon. More generally with respect to the various alternative timing suggestions, we

observe that the Commission adopted the uniform four business day deadline in 2004 to simplify

the previous bifurcated deadlines, and we find commenters have not offered any compelling

33
rationale to return to bifurcated deadlines. 127 Form 8-K provides for current reporting of events

that tend to be material to investor decision-making, and we see no reason to render the reporting

of Item 1.05 less current than other Form 8-K items.

In the Proposing Release, the Commission requested comment on whether to allow

registrants to delay filing an Item 1.05 Form 8-K where the Attorney General determines that a

delay is in the interest of national security. 128 In response to comments, we are adopting a delay

provision in cases where disclosure poses a substantial risk to national security or public safety.

Pursuant to Item 1.05(c), a registrant may delay making an Item 1.05 Form 8-K filing if the

Attorney General determines that the disclosure poses a substantial risk to national security or

public safety and notifies the Commission of such determination in writing. 129 Initially,

disclosure may be delayed for a time period specified by the Attorney General, up to 30 days

following the date when the disclosure was otherwise required to be provided. The delay may be

extended for an additional period of up to 30 days if the Attorney General determines that

disclosure continues to pose a substantial risk to national security or public safety and notifies

the Commission of such determination in writing.

In extraordinary circumstances, disclosure may be delayed for a final additional period of

up to 60 days if the Attorney General determines that disclosure continues to pose a substantial

risk to national security and notifies the Commission of such determination in writing. We are

127
See Additional Form 8-K Disclosure Release. See also Proposed Rule: Additional Form 8-K Disclosure
Requirements and Acceleration of Filing Date, Release No. 33-8106 (June 17, 2002) [67 FR 42914 (June 25,
2002)].
128
Proposing Release at 16598.
129
We note that the delay provision we are adopting does not relieve a company’s obligations under Regulation FD
or with respect to the securities laws’ antifraud prohibitions that proscribe certain insider trading, including
Exchange Act Section 10(b). Under Regulation FD, material nonpublic information disclosed to any investor,
for example, through investor outreach activities, would be required to be disclosed publicly, subject to limited
exceptions. See 17 CFR 243.100 et seq.

34
providing for the final additional delay period in recognition that, in extraordinary circumstances,

national security concerns may justify additional delay beyond that warranted by public safety

concerns, due to the relatively more critical nature of national security concerns. Beyond the

final 60-day delay, if the Attorney General indicates that further delay is necessary, the

Commission will consider additional requests for delay and may grant such relief through

Commission exemptive order. 130

We have consulted with the Department of Justice to establish an interagency

communication process to allow for the Attorney General’s determination to be communicated to

the Commission in a timely manner. The Department of Justice will notify the affected

registrant that communication to the Commission has been made, so that the registrant may delay

filing its Form 8-K.

We agree with commenters that a delay is appropriate for the limited instances in which

public disclosure of a cybersecurity incident may cause harm to national security or public

safety. The final rules appropriately balance such security concerns against investors’

informational needs. In particular, the provision’s “substantial risk to national security or public

safety” bases are sufficiently expansive to ensure that significant risks of harm from disclosure

may be protected against, while also ensuring that investors are not denied timely access to

material information. 131 With respect to commenters who recommended that other Federal

130
Any exercise of exemptive authority in these circumstances would need to meet all of the standards of Section
36 of the Exchange Act. Furthermore, Item 1.05 of Form 8-K in no way limits the Commission’s general
exemptive authority under Section 36.
131
The delay provision for substantial risk to national security or public safety is separate from Exchange Act Rule
0-6, which provides for the omission of information that has been classified by an appropriate department or
agency of the Federal Government for the protection of the interest of national defense or foreign policy. If the
information a registrant would otherwise disclose on an Item 1.05 Form 8-K or pursuant to Item 106 of
Regulation S-K or Item 16K of Form 20-F is classified, the registrant should comply with Exchange Act Rule
0-6.

35
agencies and non-Federal law enforcement agencies also be permitted to trigger a delay or who

argued that other agencies may be the primary organization in the Federal Government for the

response, we note that the rule does not preclude any such agency from requesting that the

Attorney General determine that the disclosure poses a substantial risk to national security or

public safety and communicate that determination to the Commission. However, we believe that

designating a single law enforcement agency as the Commission’s point of contact on such

delays is critical to ensuring that the rule is administrable.

Turning to other timing-related issues raised by commenters, we are not adopting

commenters’ suggestion to replace Item 1.05 with periodic reporting of material cybersecurity

incidents on Forms 10-Q and 10-K because such an approach may result in significant variance

as to when investors learn of material cybersecurity incidents. Based on when an incident occurs

during a company’s reporting cycle, the timing between the materiality determination and

reporting on the next Form 10-Q or Form 10-K could vary from a matter of months to a matter of

weeks or less. For example, if two companies experience a similar cybersecurity incident, but

one determines the incident is material early during a quarterly period and the other makes such

determination at the end of the quarterly period, commenters’ suggested approach would have

both companies report the incident around the same time despite the first company having

determined the incident was material weeks or months sooner, which would result in a

significant delay in this information being provided to investors. Such variance would therefore

reduce comparability across registrants and may put certain registrants at a competitive

disadvantage.

We also decline to use a quantifiable trigger for Item 1.05 because some cybersecurity

incidents may be material yet not cross a particular financial threshold. We note above that the

36
material impact of an incident may encompass a range of harms, some quantitative and others

qualitative. A lack of quantifiable harm does not necessarily mean an incident is not material.

For example, an incident that results in significant reputational harm to a registrant may not be

readily quantifiable and therefore may not cross a particular quantitative threshold, but it should

nonetheless be reported if the reputational harm is material. Similarly, whereas a cybersecurity

incident that results in the theft of information may not be deemed material based on quantitative

financial measures alone, it may in fact be material given the impact to the registrant that results

from the scope or nature of harm to individuals, customers, or others, and therefore may need to

be disclosed.

In another change from the proposal, and to respond to commenters’ concerns that the

proposed “as soon as reasonably practicable” language in Instruction 1 could pressure companies

to draw conclusions about incidents with insufficient information, we are revising the instruction

to state that companies must make their materiality determinations “without unreasonable delay.”

As explained in the Proposing Release, the instruction was intended to address any concern that

some registrants may delay making such a determination to avoid a disclosure obligation. 132 We

understand commenter concerns that the proposed instruction could result in undue pressure to

make a materiality determination before a registrant has sufficient information to do so, and we

recognize that a materiality determination necessitates an informed and deliberative process. We

believe the revised language should alleviate this unintended consequence, while providing

registrants notice that, though the determination need not be rushed prematurely, it also cannot

be unreasonably delayed in an effort to avoid timely disclosure. For example, for incidents that

132
Proposing Release at 16596.

37
impact key systems and information, such as those the company considers its “crown jewels,” 133

as well as incidents involving unauthorized access to or exfiltration of large quantities of

particularly important data, a company may not have complete information about the incident but

may know enough about the incident to determine whether the incident was material. In other

words, a company being unable to determine the full extent of an incident because of the nature

of the incident or the company’s systems, or otherwise the need for continued investigation

regarding the incident, should not delay the company from determining materiality. Similarly, if

the materiality determination is to be made by a board committee, intentionally deferring the

committee’s meeting on the materiality determination past the normal time it takes to convene its

members would constitute unreasonable delay. 134 As another example, if a company were to

revise existing incident response policies and procedures in order to support a delayed

materiality determination for or delayed disclosure of an ongoing cybersecurity event, such as by

extending the incident severity assessment deadlines, changing the criteria that would require

reporting an incident to management or committees with responsibility for public disclosures, or

introducing other steps to delay the determination or disclosure, that would constitute

unreasonable delay. In light of the revision to Instruction 1, we find that a safe harbor, as

suggested by some commenters, is unnecessary; adhering to normal internal practices and

disclosure controls and procedures will suffice to demonstrate good faith compliance.

Importantly, we remind registrants, as the Commission did in the Proposing Release, that

133
See National Cybersecurity Alliance, Identify Your “Crown Jewels” (July 1, 2022), available at
https://staysafeonline.org/cybersecurity-for-business/identify-your-crown-jewels/ (explaining that “[c]rown
jewels are the data without which your business would have difficulty operating and/or the information that
could be a high-value target for cybercriminals”).
134
We note that Form 8-K Item 1.05 does not specify whether the materiality determination should be performed
by the board, a board committee, or one or more officers. The company may establish a policy tasking one or
more persons to make the materiality determination. Companies should seek to provide those tasked with the
materiality determination information sufficient to make disclosure decisions.

38
“[d]oubts as to the critical nature” of the relevant information “will be commonplace” and should

“be resolved in favor of those the statute is designed to protect,” namely investors. 135

Revised Instruction 1 should also reassure registrants that they should continue sharing

information with other companies or government actors about emerging threats. Such

information sharing may not necessarily result in an Item 1.05 disclosure obligation. The

obligation to file the Item 1.05 disclosure is triggered once a company has developed information

regarding an incident sufficient to make a materiality determination, and a decision to share

information with other companies or government actors does not in itself necessarily constitute a

determination of materiality. A registrant may alert similarly situated companies as well as

government actors immediately after discovering an incident and before determining materiality,

so long as it does not unreasonably delay its internal processes for determining materiality.

As proposed, we are adding Item 1.05 to the list of Form 8-K items in General Instruction

I.A.3.(b) of Form S-3 , so that the untimely filing of an Item 1.05 Form 8-K will not result in the

loss of Form S-3 eligibility. 136 We note the significant support from commenters regarding this

proposal, and as noted in the Proposing Release, continue to believe that the consequences of the

loss of Form S-3 eligibility would be unduly severe given the circumstances that will surround

Item 1.05 disclosures. Likewise, as supported by many commenters, we are adopting as

proposed amendments to Rules 13a-11(c) and 15d-11(c) under the Exchange Act to include new

Item 1.05 in the list of Form 8-K items eligible for a limited safe harbor from liability under

Section 10(b) or Rule 10b-5 under the Exchange Act. This accords with the view the

135
Proposing Release at 16596 (quoting TSC Indus. v. Northway, 426 U.S. at 448). The Court’s opinion in TSC
Indus. has a nuanced discussion of the balance of considerations in setting a materiality standard. 426 U.S. at
448-450.
136
Because of our decision to exempt asset-backed issuers from the new rules (see infra Section II.G.1), we are not
amending Form SF-3.

39
Commission articulated in 2004 that the safe harbor is appropriate if the triggering event for the

Form 8-K requires management to make a rapid materiality determination. 137

We decline to permit registrants to furnish rather than file the Item 1.05 Form 8-K, as

suggested by some commenters. While we understand commenters’ points that reducing liability

may ease the burden on registrants, we believe that treating Item 1.05 disclosures as filed will

help promote the accuracy and reliability of such disclosures for the benefit of investors. Of the

existing Form 8-K items, only Items 2.02 (Results of Operations and Financial Condition) and

7.01 (Regulation FD Disclosure) are permitted to be furnished rather than filed. The

Commission created exceptions for those two items to allay concerns that do not pertain here.

Specifically, with respect to Item 2.02, the Commission was motivated by concerns that

requiring the information to be filed would discourage registrants from proactively issuing

earnings releases and similar disclosures. 138 Similarly, with respect to Item 7.01, the

Commission decided to allow the disclosure to be furnished to address concerns that, if required

to be filed, the disclosure could be construed as an admission of materiality, which might lead

some registrants to avoid making proactive disclosure. 139 By contrast, Item 1.05 is not a

voluntary disclosure, and it is by definition material because it is not triggered until the registrant

determines the materiality of an incident. It is thus more akin to the Form 8-K items other than

Items 2.02 and 7.01, in that it is a description of a material event that has occurred about which

investors need adequate information. Therefore, the final rules require an Item 1.05 Form 8-K to

be filed.

137
Additional Form 8-K Disclosure Release at 15607.
138
See Conditions for Use of Non-GAAP Financial Measures, Release No. 33-8176 (Jan. 22, 2003) [68 FR 4819
(Jan. 30, 2003)].
139
See Selective Disclosure and Insider Trading, Release No. 33-7881 (Aug. 15, 2000) [65 FR 51715 (Aug. 24,
2000)].

40
 We are not including a new rule to ban trading by insiders during the materiality

determination time period, as suggested by some commenters. Those with a fiduciary duty or

other relationship of trust and confidence are already prohibited from trading while in possession

of material, nonpublic information. 140 And because we are adopting the four business days from

materiality determination deadline, we agree with the point raised by some commenters that the

risk of insider trading is low given the limited time period between experiencing a material

incident and public disclosure. We also note that we recently adopted amendments to 17 CFR

240.10b5-1 (“Rule 10b5-1”) that added a certification condition for directors and officers

wishing to avail themselves of the rule’s affirmative defense; specifically, if relying on the

amended affirmative defense, directors and officers need to certify in writing, at the time they

adopt the trading plan, that they are unaware of material nonpublic information about the issuer

or its securities, and are adopting the plan in good faith and not as part of a plan or scheme to

evade the insider trading prohibitions. 141 Therefore, given the timing of the incident disclosure

requirement as well as the recently adopted amendments to Rule 10b5-1, we do not find need for

a new rule banning trading by insiders during the time period between the materiality

determination and disclosure.

A number of commenters raised concerns about conflicts with other Federal laws and

regulations. Of the Federal laws and regulations that we reviewed and commenters raised

concerns with, we have identified one conflict, with the FCC’s notification rule for breaches of

140
United States v. O’Hagan, 521 U.S. 642 (1997).
141
See Insider Trading Arrangements and Related Disclosures, Release No. 33-11138 (Dec. 14, 2022) [87 FR
80362 (Dec. 29, 2022)].

41
customer proprietary network information (“CPNI”). 142 Of the remaining Federal laws and

regulations noted by commenters as presenting conflicts, our view is that Item 1.05 neither

directly conflicts with nor impedes the purposes of other such laws and regulations.

The FCC’s rule for notification in the event of breaches of CPNI requires covered entities

to notify the United States Secret Service (“USSS”) and the Federal Bureau of Investigation

(“FBI”) no later than seven business days after reasonable determination of a CPNI breach, and

further directs the entities to refrain from notifying customers or disclosing the breach publicly

until seven business days have passed following the notification to the USSS and FBI. 143 To

accommodate registrants who are subject to this rule and may as a result face conflicting

disclosure timelines, 144 we are adding paragraph (d) to Item 1.05 providing that such registrants

may delay making a Form 8-K disclosure up to the seven business day period following

notification to the USSS and FBI specified in the FCC rule, 145 with written notification to the

Commission. 146

142
47 CFR 64.2011. CPNI is defined in 47 CFR 222(h)(1) as: “(A) information that relates to the quantity,
technical configuration, type, destination, location, and amount of use of a telecommunications service
subscribed to by any customer of a telecommunications carrier, and that is made available to the carrier by the
customer solely by virtue of the carrier-customer relationship; and (B) information contained in the bills
pertaining to telephone exchange service or telephone toll service received by a customer of a carrier; except
that such term does not include subscriber list information.”
143
We note that the FCC recently proposed amending its rule; among other things, the proposal would eliminate
the seven-business day waiting period, potentially eliminating the conflict. Federal Communications
Commission, Data Breach Reporting Requirements, 88 FR 3953 (Jan. 23, 2023).
144
Commission staff consulted with FCC staff about a potential delay provision to address any conflict between
the FCC rule and the Form 8-K reporting requirements.
145
The exception we are creating does not apply to 47 CFR 64.2011(b)(3), which provides that the USSS or FBI
may direct the entity to further delay notification to customers or public disclosure beyond seven business days
if such disclosure “would impede or compromise an ongoing or potential criminal investigation or national
security.” If the USSS or FBI believes that disclosure would result in a substantial risk to national security or
public safety, it may, as explained above, work with the Department of Justice to seek a delay of disclosure.
146
Such notice should be provided through correspondence on EDGAR no later than the date when the disclosure
required by Item 1.05 was otherwise required to be provided.

42
 We also considered the conflicts commenters alleged with CIRCIA. Specifically, they

stated that Item 1.05 is at odds with the goals of CIRCIA, and that it may conflict with

forthcoming regulations from CISA. The confidential reporting system established by CIRCIA

serves a different purpose from Item 1.05 and through different means; the former focuses on

facilitating the Federal Government’s preparation for and rapid response to cybersecurity threats,

while the latter focuses on providing material information about public companies to investors in

a timely manner. While CISA has yet to propose regulations to implement CIRCIA, given the

statutory authority, text, and legislative history of CIRCIA, it appears unlikely the regulations

would affect the balance of material information available to investors about public companies,

because the reporting regime CIRCIA establishes is confidential. 147 Nonetheless, the

Commission participates in interagency working groups on cybersecurity regulatory

implementation, and will continue to monitor developments in this area to determine if

modification to Item 1.05 becomes appropriate in light of future developments. 148

We also considered the HIPAA-related conflict alleged by commenters, specifically with

respect to HHS’s rule on Notification in the Case of Breach of Unsecured Protected Health

Information. That rule provides, in the event of a breach of unsecured protected health

information, for the covered entity to provide notification to affected individuals “without

unreasonable delay and in no case later than 60 calendar days after discovery of a breach.” 149 If

the breach involves more than 500 residents of a state or jurisdiction, the rule directs the covered

147
6 U.S.C. 681e.
148
Should a conflict arise in the future with CISA regulations or regulations of another Federal agency, the
Commission can address such conflict via rulemaking or other action at that time.
149
45 CFR 164.404(b). The notification must describe the breach, the types of unsecured protected health
information involved, steps the individuals should take to protect themselves, what the entity is doing to
mitigate harm and remediate, and where the individuals can seek additional information. Id.

43
entity to also notify prominent media outlets within the same timeframe. 150 The rule further

provides that if a company receives written notice from “a law enforcement official” requesting a

delay and specifying the length of the delay, then the company “shall … delay such notification,

notice, or posting for the time period specified by the official.” 151

We do not view Form 8-K Item 1.05 as implicated by the HHS rule. Importantly, the

HHS rule’s delay provision applies specifically to any “notification, notice, or posting required

under this subpart,” or in other words notice to affected individuals, media, and the Secretary of

HHS. 152 Such notification focuses on the consequences of the breach for the affected individuals;

for example, individuals must be told what types of protected health information were accessed,

and what steps they should take to protect themselves from harm. 153 This is different from the

disclosure required by Item 1.05, which focuses on the consequences for the company that are

material to investors, and whose timing is tied not to discovery but to a materiality

determination. The HHS rule does not expressly preclude the latter type of public disclosure, or

other potential communications companies experiencing a breach may make. Therefore, we

believe that a registrant subject to the HHS rule will not face a conflict in complying with Item

1.05. 154

We also considered the conflicts commenters alleged with regulations and programs of

DOD, DOE, DHS, the Federal banking regulatory agencies, state insurance laws, and

miscellaneous other Federal agencies or laws. We find that, while there may be some overlap of

150
45 CFR 164.406.
151
45 CFR 164.412.
152
Id.
153
45 CFR 164.404(c).
154
For the same reason, the Federal Trade Commission’s Health Breach Notification rule, which is similar to
HHS’s rule, does not present a conflict either. See 16 CFR part 318.

44
subject matter, Item 1.05 neither conflicts with nor impedes the purpose of those regulations and

programs. 155 We disagree with one commenter’s assertion that cybersecurity incident disclosure

“falls squarely within the jurisdiction of state insurance commissioners” as state cybersecurity

incident reporting regulations would not pertain to the “business of insurance” as courts have

interpreted the McCarran-Ferguson Act, and the commenter did not note any particular state

insurance laws that would present a conflict. 156 With respect to Federal banking regulatory

agencies specifically, we note that, in the event they believe that the disclosure of a material

cybersecurity incident would threaten the health of the financial system in such a way that results

in a substantial risk to national security or public safety, they may, as explained above, work

with the Department of Justice to seek to delay disclosure.

It would not be practical to further harmonize Item 1.05 with other agencies’

cybersecurity incident reporting regulations, as one commenter suggested, 157 because Item 1.05

serves a different purpose—it is focused on the needs of investors, rather than the needs of

regulatory agencies, affected individuals, or the like. With respect to state insurance and privacy

laws, commenters did not provide any evidence sufficient to alter the Commission’s finding in

the Proposing Release that, to the extent that Item 1.05 would require disclosure in a situation

where state law would excuse or delay notification, we consider prompt reporting of material

cybersecurity incidents to investors critical to investor protection and well-functioning, orderly,

and efficient markets.

155
For example, one commenter alleged conflicts with DHS’s Chemical Facilities Anti-Terrorism Standards
program (“CFATS”) and with the Maritime Transportation Security Act (“MTSA”). See letter from American
Chemistry Council. Both CFATS and MTSA provide for the protection of certain sensitive information, but
neither is implicated by cybersecurity incident disclosure to the Commission.
156
See, e.g., SEC v. National Sec., Inc., 393 U.S. 453 (1969).
157
See letter from BIO.

45
 B. Disclosures about Cybersecurity Incidents in Periodic Reports

1. Proposed Amendments

The Commission proposed to add new Item 106 to Regulation S-K to, among other

things, require updated cybersecurity disclosure in periodic reports. If a registrant previously

provided disclosure regarding one or more cybersecurity incidents pursuant to Item 1.05 of Form

8-K, proposed 17 CFR 229.106(d)(1) (Regulation S-K “Item 106(d)(1)”) would require such

registrant to disclose “any material changes, additions, or updates” on the registrant’s quarterly

report on Form 10-Q or annual report on Form 10-K. 158 In addition, proposed Item 106(d)(1)

would require disclosure of the following information:

• Any material effect of the incident on the registrant’s operations and financial

condition;

• Any potential material future impacts on the registrant’s operations and financial

condition;

• Whether the registrant has remediated or is currently remediating the incident; and

• Any changes in the registrant’s policies and procedures as a result of the

cybersecurity incident, and how the incident may have informed such changes. 159

The Commission explained that it paired current reporting under Item 1.05 of Form 8-K

with periodic reporting under 17 CFR 229.106(d) (Regulation S-K “Item 106(d)”) to balance

investors’ need for timely disclosure with their need for complete disclosure. 160 When an Item

1.05 Form 8-K becomes due, the Commission noted, a registrant may not possess complete

158
Proposing Release at 16598.
159
Id.
160
Id.

46
information about the material cybersecurity incident. Accordingly, under the proposed rules, a

registrant would provide the information known at the time of the Form 8-K filing and follow up

in its periodic reports with more complete information as it becomes available, along with any

updates to previously disclosed information.

The Commission also proposed 17 CFR 229.106(d)(2) (Regulation S-K “Item

106(d)(2)”) to require disclosure in a registrant’s next periodic report when, to the extent known

to management, a series of previously undisclosed individually immaterial cybersecurity

incidents become material in the aggregate. 161 The Proposing Release explained that this

requirement may be triggered where, for example, a threat actor engages in a number of smaller

but continuous related cyberattacks against the same company and collectively they become

material. 162 Item 106(d)(2) would require disclosure of essentially the same information required

in proposed Item 1.05 of Form 8-K, as follows:

• A general description of when the incidents were discovered and whether they are

ongoing;

• A brief description of the nature and scope of the incidents;

• Whether any data were stolen or altered in connection with the incidents;

• The effect of the incidents on the registrant’s operations; and

• Whether the registrant has remediated or is currently remediating the incidents. 163

161
Id. at 16599.
162
Id.
163
Id. at 16619-16620.

47
 2. Comments

Reaction among commenters to proposed Item 106(d)(1) was mixed. Some wrote in

support, noting that updated incident disclosure is needed to avoid previously disclosed

information becoming stale and misleading as more information becomes available, and saying

that updates help investors assess the efficacy of companies’ cybersecurity procedures. 164 Others

took issue with specific aspects of the proposed rule. For example, some commenters stated that

the proposed requirement to disclose “any potential material future impacts” is vague and

difficult to apply, and urged removing or revising it. 165 Similarly, other commenters said that

registrants should not be required to describe progress on remediation, noting that such

information could open them up to more attacks. 166 In the same vein, one commenter suggested

that no updates be required until remediation is sufficiently complete. 167 One commenter said the

requirement to disclose changes in policies and procedures is unnecessary and overly broad, 168

and another commenter said the requirement should be narrowed to “material changes.” 169

More generally, commenters sought clarification on how to differentiate instances where

updates should be included in periodic reports from instances where updates should be filed on

Form 8-K; they found the guidance in the Proposing Release on this point “unclear.” 170 And one

164
See letters from AICPA; Crindata; R Street. See also IAC Recommendation.
165
See letters from EEI; Prof. Perullo; PWC; SCG.
166
See letters from BCE; BPI et al.; Enbridge. See also letter from EEI (suggesting narrowing the rule to “material
remediation,” and delaying such disclosure until remediation is complete).
167
See letter from EEI.
168
See letter from Prof. Perullo.
169
See letter from EEI.
170
See letter from PWC; accord letter from Deloitte. The Proposing Release stated: “Notwithstanding proposed
Item 106(d)(1), there may be situations where a registrant would need to file an amended Form 8-K to correct
disclosure from the initial Item 1.05 Form 8-K, such as where that disclosure becomes inaccurate or materially
misleading as a result of subsequent developments regarding the incident. For example, if the impact of the
incident is determined after the initial Item 1.05 Form 8-K filing to be significantly more severe than previously
disclosed, an amended Form 8-K may be required.” Proposing Release at 16598.

48
commenter argued that, regardless of where the update is filed, the incremental availability of

information would make it difficult for companies to determine when the update requirement is

triggered. 171

With respect to proposed Item 106(d)(2), a large number of commenters expressed

concern about the aggregation requirement, saying, for example, that companies experience too

many events to realistically communicate internally upward to senior management, and that

retaining and analyzing data on past events would be too costly. 172 A number of other

commenters relatedly said that, for the aggregation requirement to be workable, companies need

more guidance on the nature, timeframe, and breadth of incidents that should be collated. 173 In

this regard, one supporter of the requirement explained in its request for additional guidance that

“cybersecurity incidents are so unfortunately common that a strict reading of this section could

cause overreporting to the point that it is meaningless for shareholders.” 174

Some commenters suggested revising the rule to cover only “related” incidents. 175

Possible definitions offered for “related” incidents included those “performed by the same

malicious actor or that exploited the same vulnerability,” 176 and those resulting from “attacks on

the same systems, processes or controls of a registrant over a specified period of time.” 177

Suggestions for limiting the time period over which aggregation should occur included the

171
See letter from Quest.
172
See letters from ABA; ACLI; AIA; Business Roundtable; EEI; Enbridge; Ernst & Young LLP (“E&Y”); FAH;
FedEx; Center on Cyber and Technology Innovation at the Foundation for Defense of Democracies (“FDD”);
GPA; Hunton; ITI; ISA; LTSE; Microsoft; Nareit; NAM; NDIA; NRA; Prof. Perullo; SCG; SIFMA.
173
See letters from ACC; APCIA; BDO USA, LLP (“BDO”); BPI et al.; CAQ; Chamber; Chevron; Deloitte; EIC;
FEI; M. Barragan; PWC; R Street.; TransUnion.
174
See letter from R Street.
175
See letters from ABA; APCIA; EEI; E&Y; PWC.
176
See letter from ABA.
177
See letter from E&Y.

49
preceding one year, 178 and the preceding two years. 179 One commenter requested the

Commission clarify that a company’s Item 106(d)(2) disclosure need describe only the aggregate

material impact of the incidents, rather than describing each incident individually; the

commenter was concerned with threat actors becoming informed of a company’s vulnerabilities

through overly detailed disclosure. 180 Another commenter suggested granting registrants

additional time to come into compliance with Item 106(d)(2) after Commission adoption, so that

they can develop system functionality to retain details about immaterial incidents. 181

Commenters also wrote in support of the aggregation requirement. 182 One of these

commenters stated that aggregation is needed especially where an advanced persistent threat

actor 183 seeks to exfiltrate data or intellectual property over time. 184

3. Final Amendments

In response to comments, we are not adopting proposed Item 106(d)(1) and instead are

adopting a new instruction to clarify that updated incident disclosure must be provided in a Form

8-K amendment. Specifically, we are revising proposed Instruction 2 to Item 1.05 of Form 8-K

to direct the registrant to include in its Item 1.05 Form 8-K a statement identifying any

178
See letter from APCIA.
179
See letter from EEI.
180
See letter from AGA/INGAA.
181
See letter from Deloitte.
182
See letters from CII; CSA; R Street; NASAA.
183
The National Institute of Standards and Technology explains that an advanced persistent threat “is an adversary
or adversarial group that possesses the expertise and resources that allow it to create opportunities to achieve its
objectives by using multiple attack vectors, including cyber, physical, and deception. The APT objectives
include establishing a foothold within the infrastructure of targeted organizations for purposes of exfiltrating
information; undermining or impeding critical aspects of a mission, function, program, or organization; or
positioning itself to carry out these objectives in the future. The APT pursues its objectives repeatedly over an
extended period, adapts to defenders’ efforts to resist it, and is determined to maintain the level of interaction
needed to execute its objectives.” National Institute of Standards and Technology, NIST Special Publication
800-172, Enhanced Security Requirements for Protecting Controlled Unclassified Information (Feb. 2021), at 2.
184
See letter from CSA.

50
information called for in Item 1.05(a) that is not determined or is unavailable at the time of the

required filing and then file an amendment to its Form 8-K containing such information within

four business days after the registrant, without unreasonable delay, determines such information

or within four business days after such information becomes available. This change mitigates

commenters’ concerns with Item 106(d)(1). In particular, under the final rules, companies will

not have to distinguish whether information regarding a material cybersecurity incident that was

not determined or was unavailable at the time of the initial Form 8-K filing should be included

on current reports or periodic reports, as the reporting would be in an amended Form 8-K; details

that commenters suggested raised security concerns, such as remediation status, are not required;

and concerns that the proposed rule was vague or overbroad have been addressed by narrowing

the required disclosure to the information required by Item 1.05(a). We also believe that use of a

Form 8-K amendment rather than a periodic report will allow investors to more quickly identify

updates regarding incidents that previously were disclosed.

We appreciate that new information on a reported cybersecurity incident may surface

only in pieces; the final rules, however, do not require updated reporting for all new information.

Rather, Instruction 2 to Item 1.05 directs companies to file an amended Form 8-K with respect to

any information called for in Item 1.05(a) that was not determined or was unavailable at the time

of the initial Form 8-K filing. Other than with respect to such previously undetermined or

unavailable information, the final rules do not separately create or otherwise affect a registrant’s

duty to update its prior statements. We remind registrants, however, that they may have a duty to

correct prior disclosure that the registrant determines was untrue (or omitted a material fact

51
necessary to make the disclosure not misleading) at the time it was made 185 (for example, if the

registrant subsequently discovers contradictory information that existed at the time of the initial

disclosure), or a duty to update disclosure that becomes materially inaccurate after it is made 186

(for example, when the original statement is still being relied on by reasonable investors).

Registrants should consider whether they need to revisit or refresh previous disclosure, including

during the process of investigating a cybersecurity incident. 187

We are not adopting proposed Item 106(d)(2), in response to concerns that the proposed

aggregation requirement was vague or difficult to apply. We are persuaded by commenters that

the proposed requirement might be difficult to differentiate from Item 1.05 disclosure, or by

contrast, could result in the need for extensive internal controls and procedures to monitor all

immaterial events to determine whether they have become collectively material. The intent of

the proposed requirement was to capture the material impacts of related incidents, and prevent

the avoidance of incident disclosure through disaggregation of such related events. However,

upon further reflection, and after review of comments, we believe that the proposed requirement

is not necessary based on the scope of Item 1.05.

To that end, we emphasize that the term “cybersecurity incident” as used in the final rules

is to be construed broadly, as the Commission stated in the Proposing Release. 188 The definition

185
See Backman v. Polaroid Corp., 910 F.2d 10, 16-17 (1st Cir. 1990) (en banc) (finding that the duty to correct
applies “if a disclosure is in fact misleading when made, and the speaker thereafter learns of this”).
186
See id. at 17 (describing the duty to update as potentially applying “if a prior disclosure ‘becomes materially
misleading in light of subsequent events’” (quoting Greenfield v. Heublein, Inc., 742 F.2d 751, 758 (3d Cir.
1984))). But see Higginbotham v. Baxter Intern., Inc., 495 F.3d 753, 760 (7th Cir. 2007) (rejecting duty to
update before next quarterly report); Gallagher v. Abbott Laboratories, 269 F.3d 806, 808-11 (7th Cir. 2001)
(explaining that securities laws do not require continuous disclosure).
187
Relatedly, registrants should be aware of the requirement under Item 106(b)(2) of Regulation S-K to describe
“[w]hether any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents,
have materially affected or are reasonably likely to materially affect the registrant” (emphasis added). See infra
Section II.C.1.c.
188
Proposing Release at 16601.

52
of “cybersecurity incident” we are adopting extends to “a series of related unauthorized

occurrences.” 189 This reflects that cyberattacks sometimes compound over time, rather than

present as a discrete event. Accordingly, when a company finds that it has been materially

affected by what may appear as a series of related cyber intrusions, Item 1.05 may be triggered

even if the material impact or reasonably likely material impact could be parceled among the

multiple intrusions to render each by itself immaterial. One example was provided in the

Proposing Release: the same malicious actor engages in a number of smaller but continuous

cyberattacks related in time and form against the same company and collectively, they are either

quantitatively or qualitatively material. 190 Another example is a series of related attacks from

multiple actors exploiting the same vulnerability and collectively impeding the company’s

business materially.

C. Disclosure of a Registrant’s Risk Management, Strategy and Governance

Regarding Cybersecurity Risks

1. Risk Management and Strategy

a. Proposed Amendments

The Commission proposed to add 17 CFR 229.106(b) (Regulation S-K “Item 106(b)”) to

require registrants to provide more consistent and informative disclosure regarding their

cybersecurity risk management and strategy in their annual reports. The Commission noted the

Division of Corporation Finance staff’s experience that most registrants disclosing a

cybersecurity incident do not describe their cybersecurity risk oversight or any related policies

and procedures, even though companies typically address significant risks by developing risk

189
See infra Section II.C.3.
190
Proposing Release at 16599.

53
management systems that often include written policies and procedures. 191

Proposed Item 106(b) would require a description of the registrant’s policies and

procedures, if any, for the identification and management of cybersecurity threats, including, but

not limited to: operational risk (i.e., disruption of business operations); intellectual property theft;

fraud; extortion; harm to employees or customers; violation of privacy laws and other litigation

and legal risk; and reputational risk. As proposed, registrants would be required to include a

discussion, as applicable, of:

• Whether the registrant has a cybersecurity risk assessment program and if so, a

description of the program ((b)(1));

• Whether the registrant engages assessors, consultants, auditors, or other third parties

in connection with any cybersecurity risk assessment program ((b)(2));

• Whether the registrant has policies and procedures to oversee, identify, and mitigate

the cybersecurity risks associated with its use of any third-party service provider

(including, but not limited to, those providers that have access to the registrant’s

customer and employee data), including whether and how cybersecurity

considerations affect the selection and oversight of these providers and contractual

and other mechanisms the company uses to mitigate cybersecurity risks related to

these providers ((b)(3));

• Whether the registrant undertakes activities to prevent, detect, and minimize effects

of cybersecurity incidents ((b)(4));

• Whether the registrant has business continuity, contingency, and recovery plans in the

event of a cybersecurity incident ((b)(5));

191
Id.

54
 • Whether previous cybersecurity incidents have informed changes in the registrant’s

governance, policies and procedures, or technologies ((b)(6));

• Whether cybersecurity related risk and incidents have affected or are reasonably

likely to affect the registrant’s results of operations or financial condition and if so,

how ((b)(7)); and

• Whether cybersecurity risks are considered as part of the registrant’s business

strategy, financial planning, and capital allocation and if so, how ((b)(8)). 192

The Commission anticipated that proposed Item 106(b) would benefit investors by

requiring more consistent disclosure of registrants’ strategies and actions to manage

cybersecurity risks. 193 Such risks, the Commission observed, can affect registrants’ business

strategy, financial outlook, and financial planning, as companies increasingly rely on information

technology, collection of data, and use of digital payments as critical components of their

businesses. 194

The Commission noted that the significant number of cybersecurity incidents pertaining

to third-party service providers prompted the proposal to require disclosure of registrants’

selection and oversight of third-party entities. 195 The Commission also proposed requiring

discussion of how prior cybersecurity incidents have affected or are reasonably likely to affect

the registrant, because such disclosure would equip investors to better comprehend the level of

cybersecurity risk the company faces and assess the company’s preparedness regarding such

192
Id. at 16599-16600.
193
Id. at 16599.
194
Id.
195
Id.

55
risk. 196

b. Comments

Many commenters supported proposed Item 106(b) for requiring information that is vital

to investors as they assess companies’ risk profiles and make investment decisions. 197 One said

cybersecurity disclosures now are “scattered and unpredictable” rather than “uniform,” which

“diminishes their effectiveness.” 198 Similarly, another found that current disclosures “do not

provide investors with the information necessary to evaluate whether companies have adequate

governance structures and measures in place to deal with cybersecurity challenges.” 199 The IAC

recommended extending the proposed Item 106(b) disclosure requirements (as well as the

proposed Item 106(c) disclosure requirements) to registration statements, stating that “pre-IPO

companies may face heightened [cybersecurity] risks.” 200

By contrast, a number of commenters opposed proposed Item 106(b). In particular, they

commented that much of the proposed Item 106(b) disclosure could increase a company’s

vulnerability to cyberattacks; they expressed particular concern regarding the potential harms

from disclosures about whether cybersecurity policies are in place, incident response processes

and techniques, previous incidents and what changes they spurred, and third-party service

providers. 201 Another criticism was that proposed Item 106(b) would effectively force companies

196
Id.
197
See letters of AICPA; BuildingCyberSecurity.org (“BCS”); Better Markets; Bitsight; Blue Lava, Inc. (“Blue
Lava”); CalPERS; ITIF; National Association of Corporate Directors (“NACD”); NASAA; PWC; PRI; R
Street; SecurityScorecard; Tenable Holdings Inc. (“Tenable”). See also IAC Recommendation.
198
See letter from Better Markets.
199
See letter from PRI.
200
See IAC Recommendation.
201
See letters from ABA; ACLI; APCIA; BIO; BPI et al.; Business Roundtable; Chamber; CSA; CTIA; EIC;
Enbridge; FAH; Federated Hermes; GPA; ITI; ISA; Nareit; NAM; NMHC; NRA; National Retail Federation
(“NRF”); SIFMA; Sen. Portman; TechNet; TransUnion; USTelecom; Virtu.

56
to model their cybersecurity policies on the rule’s disclosure elements, rather than the practices

best suited to each company’s context. 202 One commenter saw proposed Item 106(b) as

counteracting the streamlining accomplished in the Commission’s 2020 release modernizing

Regulation S-K. 203

Some commenters offered suggestions to narrow proposed Item 106(b) to address their

concerns. On proposed paragraph (b)(1), one commenter recommended allowing a registrant to

forgo describing its risk assessment program if it confirms that it “uses best practices and

standards” to identify and protect against cybersecurity risks and detect and respond to such

events. 204 On proposed paragraph (b)(3), a few commenters said that registrants should be

required to disclose only high-level information relating to third parties, such as confirmation

that policies and procedures are appropriately applied to third-party selection and oversight, and

should not have to identify the third parties or discuss the underlying mechanisms, controls, and

contractual requirements. 205

Some commenters opposed proposed paragraph (b)(6)’s requirement to discuss whether

“previous cybersecurity incidents informed changes in the registrant’s governance, policies and

procedures, or technologies” entirely, stating it would undermine a registrant’s cybersecurity. 206

One commenter recommended the proposed (b)(6) disclosure be required only at a high level,

without specific details, 207 while two commenters appeared to propose only requiring disclosure

202
See letters from BPI et al.; Chamber; EIC; Nareit; NRF; NYSE; SCG; SIFMA; Virtu.
203
See letter from Nasdaq (citing Modernization of Regulation S-K Items 101, 103, and 105, Release No. 33-10825
(Aug. 26, 2020) [85 FR 63726 (Oct. 8, 2020)]).
204
See letter from Cybersecurity Coalition.
205
See letters from BPI et al.; Chamber; SIFMA. Other commenters supported the level of detail required in
(b)(3). See letters from AICPA; PRI.
206
See letters from ITI; SCG; Tenable.
207
See letter from Cybersecurity Coalition.

57
as it pertains to previous material incidents. 208 Commenters suggested a materiality filter for

proposed paragraph (b)(7)’s requirement to discuss whether “cybersecurity-related risks and

previous cybersecurity-related incidents have affected or are reasonably likely to affect the

registrant’s strategy, business model, results of operations, or financial condition and if so, how,”

so that the requirement would apply only where a registrant has been materially affected or is

reasonably likely to be materially affected. 209

More broadly, one commenter recommended replacing the rule’s references to “policies

and procedures” with “strategy and programs,” because in the commenter’s experience

companies may not codify their cybersecurity strategy in the same way they codify other

compliance policies and procedures. 210 One commenter also suggested offering companies the

choice to place the proposed Item 106(b) disclosures in either the Form 10-K or the proxy

statement. 211

Several commenters supported requiring registrants that lack cybersecurity policies and

procedures to explicitly say so, commenting, for example, that “investors should not be left to

intuit the meaning of a company’s silence in its disclosures.” 212 One commenter further stated

that registrants should be required to explain why they have not adopted cybersecurity policies

and procedures. 213 By contrast, two commenters opposed requiring registrants that lack

208
See letters from AGA/INGA; American Public Gas Association (“APGA”).
209
See letter from PWC.
210
See letter from Prof. Perullo.
211
See letter from Nasdaq.
212
See letters from Blue Lava; CSA; Cybersecurity Coalition; ITI; NASAA; Prof. Perullo; Tenable. The quoted
language is from NASAA’s letter. See also IAC Recommendation (recommending “that issuers that have not
developed any cybersecurity policies or procedures be required to make a statement to that effect” because “the
vast majority of investors . . . would view the complete absence of cybersecurity risk governance as
overwhelmingly material to investment decision-making”).
213
See letter from NASAA.

58
cybersecurity policies and procedures to explicitly say so, 214 with one commenter saying that “a

threat actor may target registrants they perceive to have unsophisticated cybersecurity

programs,” 215 and the other commenter saying “it is highly unlikely that any SEC registrants

would not have ‘established any cybersecurity policies and procedures.” 216

In response to the Commission’s request for comment about whether to require a

registrant to specify whether any cybersecurity assessor, consultant, auditor, or other service

provider that it relies on is through an internal function or through an external third-party service

provider, several commenters opposed the idea as not useful, with one saying that “a significant

majority—possibly the entirety—of SEC registrants” rely on third-party service providers for

some portion of their cybersecurity. 217 Conversely, another commenter supported the third-party

specification, and suggested requiring registrants to name the third parties, as over time, this

would create more transparency in whether breaches correlate with specific third parties. 218

Commenters also offered a range of recommended additions to the rule. One commenter

recommended modifying proposed paragraph (b)(1) to require registrants to specify whether

their cybersecurity programs assess risks continuously or periodically, arguing the latter

approach leaves companies more exposed. 219 The same commenter suggested paragraph (b)(2)

require “a description of the class of services and solutions” provided by third parties. 220

214
See letters from EIC; IIA.
215
See letter from EIC.
216
See letter from IIA.
217
See letters from BCS; Chevron; EIC; IIA; Prof. Perullo. The quoted language is from the letter of IIA.
218
See letter from Blue Lava.
219
See letter from Tenable.
220
Id.

59
 A few commenters recommended that we direct registrants to quantify their cybersecurity

risk exposure through independent risk assessments. 221 Similarly, one commenter urged us to

require registrants to explain how they quantify their cybersecurity risk, 222 while another said we

should set out quantifiable metrics against which companies measure their cybersecurity

systems, though it did not specify what these metrics should be. 223 Two commenters suggested

that we require companies to disclose whether their cybersecurity programs have been audited by

a third party. 224 And one commenter recommended that we require registrants to disclose

whether they use the cybersecurity framework of the National Institute of Standards and

Technology (“NIST”), to ease comparison of registrant risk profiles. 225

c. Final Amendments

We continue to believe that investors need information on registrants’ cybersecurity risk

management and strategy, and that uniform, comparable, easy to locate disclosure will not

emerge absent new rules. Commenters raised concerns with proposed Item 106(b)’s security

implications and what they saw as its prescriptiveness. We agree that extensive public disclosure

on how a company plans for, defends against, and responds to cyberattacks has the potential to

advantage threat actors. Similarly, we acknowledge commenters’ concerns that the final rule

could unintentionally affect a registrant’s risk management and strategy decision-making. In

response to those comments, we confirm that the purpose of the rules is, and was at proposal, to

inform investors, not to influence whether and how companies manage their cybersecurity risk.

221
See letters from BitSight; Kovrr Risk Modeling Ltd.; SecurityScorecard.
222
See letter from Safe Security.
223
See letter from FDD.
224
See letters from BCS; Better Markets.
225
See letter from SandboxAQ. This commenter also recommended registrants be required to disclose whether
they use post-quantum cryptography as part of their risk mitigation efforts.

60
Additionally, to respond to commenters’ concerns about security, the final rules eliminate or

narrow certain elements from proposed Item 106(b). We believe the resulting rule requires

disclosure of information material to the investment decisions of investors, in a way that is

comparable and easy to locate, while steering clear of security sensitive details.

As adopted, 17 CFR 229.106(b)(1) (Regulation S-K “Item 106(b)(1)”) requires a

description of “the registrant’s processes, if any, for assessing, identifying, and managing

material risks from cybersecurity threats in sufficient detail for a reasonable investor to

understand those processes.” We believe this revised formulation of the rule should help avoid

levels of detail that may go beyond information that is material to investors and address

commenters’ concerns that those details could increase a company’s vulnerability to cyberattack.

We have also substituted the term “processes” for the proposed “policies and procedures” to

avoid requiring disclosure of the kinds of operational details that could be weaponized by threat

actors, and because the term “processes” more fully compasses registrants’ cybersecurity

practices than “policies and procedures,” which suggest formal codification. 226 We still expect

the disclosure to allow investors to ascertain a registrant’s cybersecurity practices, such as

whether they have a risk assessment program in place, with sufficient detail for investors to

understand the registrant’s cybersecurity risk profile. The shift to “processes” also obviates the

question of whether to require companies that do not have written policies and procedures to

disclose that fact. We believe that, to the extent a company discloses that it faces a material

226
See letter from Prof. Perullo (distinguishing the formality of “policies and procedures” from the informality of
“strategy or program”). We have adopted “processes” in place of the commenter’s suggestion of “strategy or
program” because “processes” is broader and commonly understood. We decline the suggestion from another
commenter to allow registrants to avoid this disclosure altogether by confirming they adhere to “best practices
and standards,” because there is no single set of widely accepted best practices and standards, and industry
practices may evolve. See letter from Cybersecurity Coalition.

61
cybersecurity risk in connection with its overall disclosures of material risks, 227 an investor can

ascertain whether such risks have resulted in the adoption of processes to assess, identify, and

manage material cybersecurity risks based on whether the company also makes such disclosures

under the final rules.

We have also added a materiality qualifier to the proposed requirement to disclose “risks

from cybersecurity threats,” and have removed the proposed list of risk types (i.e., “intellectual

property theft; fraud; extortion; harm to employees or customers; violation of privacy laws and

other litigation and legal risk; and reputational risk”), to foreclose any perception that the rule

prescribes cybersecurity policy. We continue to believe these are the types of risks that

registrants may face in this context, and enumerate them here as guidance. We note that

registrants will continue to tailor their cybersecurity processes to threats as they perceive them.

The rule requires registrants to describe those processes insofar as they relate to material

cybersecurity risks.

We have also revised Item 106(b)’s enumerated disclosure elements in response to

commenters that raised concerns regarding the level of detail required by some elements of the

proposal. Specifically, we are not adopting proposed paragraphs (4) (prevention and detection

activities), (5) (continuity and recovery plans), and (6) (previous incidents). We have similarly

revised proposed paragraph (3) to eliminate some of the detail it required, consistent with

commenter suggestions to require only high-level disclosure regarding third-party service

providers. The enumerated elements that a registrant should address in its Item 106(b)

disclosure, as applicable, are:

227
See Item 105 of Regulation S-K.

62
 • Whether and how the described cybersecurity processes in Item 106(b) have been

integrated into the registrant’s overall risk management system or processes;

• Whether the registrant engages assessors, consultants, auditors, or other third parties

in connection with any such processes; and

• Whether the registrant has processes to oversee and identify material risks from

cybersecurity threats associated with its use of any third-party service provider.

We have also revised the rule text to clarify that the above elements compose a non-exclusive list

of disclosures; registrants should additionally disclose whatever information is necessary, based

on their facts and circumstances, for a reasonable investor to understand their cybersecurity

processes.

We have moved proposed paragraph (7) into a separate paragraph, at 17 CFR

229.106(b)(2) (Regulation S-K “Item 106(b)(2)”), instead of including it in the enumerated list in

Item 106(b)(1), and have added a materiality qualifier in response to a comment. 228 Item

106(b)(2) requires a description of “[w]hether any risks from cybersecurity threats, including as a

result of any previous cybersecurity incidents, have materially affected or are reasonably likely

to materially affect the registrant, including its business strategy, results of operations, or

financial condition and if so, how.” 229

The final rules will require disclosure of whether a registrant engages assessors,

consultants, auditors, or other third parties in connection with their cybersecurity because we

228
See letter from PWC.
229
With respect to the Item 106(b)(2)’s requirement to describe any risks as a result of any previous cybersecurity
incidents, see supra Section II.B.3 for a discussion of the duties to correct or update prior disclosure that
registrants may have in certain circumstances. As we note in that section, registrants should consider whether
they need to revisit or refresh previous disclosure, including during the process of investigating a cybersecurity
incident.

63
believe it is important for investors to know a registrant’s level of in-house versus outsourced

cybersecurity capacity. We understand that many registrants rely on third-party service

providers for some portion of their cybersecurity, and we believe this information is accordingly

necessary for investors to assess a company’s cybersecurity risk profile in making investment

decisions. However, we are not persuaded, as one commenter contended, that registrants should

be required to name the third parties (though they may choose to do so), because we believe this

may magnify concerns about increasing a company’s cybersecurity vulnerabilities. For the same

reason, we decline the commenter suggestion to require a description of the services provided by

third parties.

We are also not persuaded that risk quantification or other quantifiable metrics are

appropriate as mandatory elements of a cybersecurity disclosure framework. While such metrics

may be used by registrants and investors in the future, commenters did not identify any such

metrics that would be appropriate to mandate at this time. Additionally, to the extent that a

registrant uses any quantitative metrics in assessing or managing cybersecurity risks, it may

disclose such information voluntarily. For similar reasons, we decline commenters’

recommendations to require disclosure of independent assessments and audits, as well as

commenters’ recommendations on disclosure of use of the NIST framework, and on

distinguishing between continuous and periodic risk assessment.

We decline the commenter suggestion to allow Item 106(b) disclosure to be provided in

the proxy statement, as the proxy statement is generally confined to information pertaining to the

election of directors. We are also not requiring Item 106 disclosures in registration statements as

recommended by the IAC, consistent with our efforts to reduce the burdens associated with the

64
final rule. However, as discussed further below, 230 we reiterate the Commission’s guidance from

the 2018 Interpretive Release that “[c]ompanies should consider the materiality of cybersecurity

risks and incidents when preparing the disclosure that is required in registration statements.” 231

Finally, we note that registrants may satisfy the Item 106 disclosure requirements through

incorporation by reference pursuant to 17 CFR 240.12b-23 (“Rule 12b-23”). 232

2. Governance

a. Proposed Amendments

The Commission proposed to add 17 CFR 229.106(c) (Regulation S-K “Item 106(c)”) to

require a description of management and the board’s oversight of a registrant’s cybersecurity

risk. This information would complement the proposed risk management and strategy disclosure

by clarifying for investors how a registrant’s leadership oversees and implements its

cybersecurity processes. 233 Proposed 17 CFR 229.106(c)(1) (Regulation S-K “Item 106(c)(1)”)

would focus on the board’s role, requiring discussion, as applicable, of:

• Whether the entire board, specific board members, or a board committee is

responsible for the oversight of cybersecurity risks;

• The processes by which the board is informed about cybersecurity risks, and the

frequency of its discussions on this topic; and

• Whether and how the board or board committee considers cybersecurity risks as part

of its business strategy, risk management, and financial oversight.

230
See infra text accompanying notes 355 and 356.
231
2018 Interpretive Release at 8168.
232
As required by Rule 12b-23, in order to incorporate information by reference in answer, or partial answer, to
Item 106, a registrant must, among other things, include an active hyperlink if the information is publicly
available on EDGAR.
233
Proposing Release at 16600.

65
Proposed 17 CFR 229.106(c)(2) (Regulation S-K “Item 106(c)(2)”) meanwhile would require a

description of management’s role in assessing and managing cybersecurity-related risks, as well

as its role in implementing the registrant’s cybersecurity policies, procedures, and strategies,

including at a minimum discussion of:

• Whether certain management positions or committees are responsible for measuring

and managing cybersecurity risk, specifically the prevention, mitigation, detection,

and remediation of cybersecurity incidents, and the relevant expertise of such persons

or members;

• Whether the registrant has a designated chief information security officer, or someone

in a comparable position, and if so, to whom that individual reports within the

registrant’s organizational chart, and the relevant expertise of any such persons;

• The processes by which such persons or committees are informed about and monitor

the prevention, mitigation, detection, and remediation of cybersecurity incidents; and

• Whether and how frequently such persons or committees report to the board of

directors or a committee of the board of directors on cybersecurity risk.

The Proposing Release explained that proposed Item 106(c)(1) would reinforce the

Commission’s 2018 Interpretive Release, 234 which said that disclosure on how a board engages

management on cybersecurity helps investors assess the board’s exercise of its oversight

responsibility. 235 The Proposing Release noted that proposed Item 106(c)(2) would be of

234
Id. (citing 2018 Interpretive Release at 8170).
235
2018 Interpretive Release at 8170.

66
importance to investors in that it would help investors understand how registrants are planning

for cybersecurity risks and inform their decisions on how best to allocate their capital. 236

b. Comments

A few commenters supported proposed Item 106(c) as providing investors with more

uniform and informed understanding of registrants’ governance of cybersecurity risks. 237 A

number of commenters opposed proposed Item 106(c). They contended that the proposed Item

106(c) disclosures would be too granular to be decision-useful; instead, some of these

commenters recommended that we limit the rule to a high-level explanation of management and

the board’s role in cybersecurity risk oversight. 238

One commenter said proposed Item 106(c)(1) should be dropped because it duplicates

existing 17 CFR 229.407(h) (Regulation S-K “Item 407(h)”), which requires reporting of

material information regarding a board’s leadership structure and role in risk oversight, including

how it administers its oversight function. 239 Others saw similarities with Item 407(h) as well and

suggested instead that proposed Item 106(c) be subsumed into Item 407, thus co-locating

governance disclosures. 240

In response to a request for comment in the Proposing Release on whether the

Commission should expressly provide for the use of hyperlinks or cross-references in Item 106,

one commenter supported the use of hyperlinks and cross-references, but sought clarification of

236
Proposing Release at 16600.
237
See, e.g., letters from Better Markets; CalPERS.
238
See letters from ABA; AGA/INGAA; EEI; Nareit; NYSE.
239
See letter from Davis Polk. The commenter went on to say that, to the extent Item 106(c) requires disclosure of
immaterial information regarding the board, it should be dropped.
240
See letters from ABA; BDO; PWC.

67
whether the practice is already permitted under Commission rules. 241 Another commenter

opposed, saying Item 407(h)’s more general discussion of board governance is distinct from Item

106(c)(1)’s specific focus on cybersecurity. 242 The commenter cautioned that allowing

registrants to employ hyperlinks and cross-references in Item 106 would lead to “less detail,”

resulting in disclosure insufficient to investor needs. 243

One commenter recommended that we move proposed Item 106(c)(2) to the enumerated

list of topics called for in proposed Item 106(b). 244 Another commenter suggested expanding the

rule to include disclosure of management and staff training on cybersecurity, asserting that the

information is useful to investors because policies depend on staff for successful

implementation. 245 Two commenters suggested allowing the Item 106(c) disclosures to be made

in the proxy statement. 246

c. Final Amendments

In response to comments, and aligned with our changes to Item 106(b), we have

streamlined Item 106(c) to require disclosure that is less granular than proposed. Under Item

106(c)(1) as adopted, registrants must “[d]escribe the board’s oversight of risks from

cybersecurity threats,” and, if applicable, “identify any board committee or subcommittee

responsible” for such oversight “and describe the processes by which the board or such

committee is informed about such risks.” We have removed proposed Item 106(c)(1)(iii), which

had covered whether and how the board integrates cybersecurity into its business strategy, risk

241
See letter from E&Y.
242
See letter from Tenable.
243
Id.
244
See letter from Davis Polk.
245
See letter from PRI.
246
See letters from Business Roundtable; Nasdaq.

68
management, and financial oversight. While we have also removed the proposed Item

106(c)(1)(ii) requirement to disclose “the frequency of [the board or committee’s] discussions”

on cybersecurity, we note that, depending on context, some registrants’ descriptions of the

processes by which their board or relevant committee is informed about cybersecurity risks may

include discussion of frequency. 247

Given these changes, we find that Item 407(h) and Item 106(c)(1) as adopted serve

distinct purposes and should not be combined, as suggested by some commenters—the former

requires description of the board’s leadership structure and administration of risk oversight

generally, while the latter requires detail of the board’s oversight of specific cybersecurity risk.

As noted by one commenter, 248 to the extent these disclosures are duplicative, a registrant would

be able to incorporate such information by reference. 249

We have also modified Item 106(c)(2) to add a materiality qualifier, to make clear that

registrants must “[d]escribe management’s role in assessing and managing the registrant’s

material risks from cybersecurity threats” (emphasis added). 250 The enumerated disclosure

elements now constitute a “non-exclusive list” registrants should consider including. We have

revised the first element to require the disclosure of management positions or committees

“responsible for assessing and managing such risks, and the relevant expertise of such persons or

members in such detail as necessary to fully describe the nature of the expertise.” Because this

247
For example, if the board or committee relies on periodic (e.g., quarterly) presentations by the registrant’s chief
information security officer to inform its consideration of risks from cybersecurity threats, the registrant may, in
the course of describing those presentations, also note their frequency.
248
See letter from E&Y.
249
Rule 12b-23.
250
We have not added a materiality qualifier to Item 106(c)(1) because, if a board of directors determines to
oversee a particular risk, the fact of such oversight being exercised by the board is material to investors. By
contrast, management oversees many more matters and management’s oversight of non-material matters is
likely not material to investors, so a materiality qualifier is appropriate for Item 106(c)(2).

69
requirement would typically encompass identification of whether a registrant has a chief

information security officer, or someone in a comparable position, we are not adopting the

proposed second element that would have specifically called for disclosure of whether the

registrant has a designated chief information security officer. Given our purpose of streamlining

the disclosure requirements, we also are not adopting the proposed requirement to disclose the

frequency of management-board discussions on cybersecurity, though, as noted above,

discussion of frequency may in some cases be included as part of describing the processes by

which the board or relevant committee is informed about cybersecurity risks in compliance with

Item 106(c)(1), to the extent it is relevant to an understanding of the board’s oversight of risks

from cybersecurity threats.

Thus, as adopted, Item 106(c)(2) directs registrants to consider disclosing the following

as part of a description of management’s role in assessing and managing the registrant’s material

risks from cybersecurity threats:

• Whether and which management positions or committees are responsible for

assessing and managing such risks, and the relevant expertise of such persons or

members in such detail as necessary to fully describe the nature of the expertise;

• The processes by which such persons or committees are informed about and monitor

the prevention, detection, mitigation, and remediation of cybersecurity incidents; and

• Whether such persons or committees report information about such risks to the board

of directors or a committee or subcommittee of the board of directors.

As many commenters recommended, these elements are limited to disclosure that we

believe balances investors’ needs to understand a registrant’s governance of risks from

cybersecurity threats in sufficient detail to inform an investment or voting decision with concerns

70
that the proposal could inadvertently pressure registrants to adopt specific or inflexible

cybersecurity-risk governance practices or organizational structures. We do not believe these

disclosures should be subsumed into Item 106(b), as one commenter recommended, because

identifying the management committees and positions responsible for risks from cybersecurity

threats is distinct from describing the cybersecurity practices management has deployed. We

also decline the commenter suggestion to require disclosure of management and staff training on

cybersecurity; registrants may choose to make such disclosure voluntarily. Finally, we decline

the commenter suggestion to allow Item 106(c) disclosure to be provided in the proxy statement;

governance information in the proxy statement is generally meant to inform shareholders’ voting

decisions, whereas Item 106(c) disclosure informs investors’ assessment of investment risk.

3. Definitions

a. Proposed Definitions

The Commission proposed to define three terms to delineate the scope of the

amendments: “cybersecurity incident,” “cybersecurity threat,” and “information systems.” 251

Proposed 229 CFR 229.106(a) (Regulation S-K “Item 106(a)”) would define them as follows:

• Cybersecurity incident means an unauthorized occurrence on or conducted through a

registrant’s information systems that jeopardizes the confidentiality, integrity, or

availability of a registrant’s information systems or any information residing therein.

• Cybersecurity threat means any potential occurrence that may result in an

unauthorized effort to adversely affect the confidentiality, integrity or availability of a

registrant’s information systems or any information residing therein.

251
Proposing Release at 16600-16601.

71
 • Information systems means information resources, owned, or used by the registrant,

including physical or virtual infrastructure controlled by such information resources,

or components thereof, organized for the collection, processing, maintenance, use,

sharing, dissemination, or disposition of the registrant’s information to maintain or

support the registrant’s operations.

As noted above, the Commission explained that what constitutes a “cybersecurity incident”

should be construed broadly, encompassing a range of event types. 252

b. Comments

Most commenters that offered feedback on the proposed definitions suggested narrowing

them in some fashion. On “cybersecurity incident,” many commenters urged limiting the

definition to cases of actual harm, thereby excluding incidents that had only the potential to

cause harm. 253 They suggested accomplishing this by replacing “jeopardizes” with phrases such

as “adversely affects” or “results in substantial loss of.” 254 One of these commenters noted that

such a change would more closely align the definition with that in CIRCIA. 255 Other

commenters objected to the definition’s use of “any information” as overbroad, saying it would

lead to inconsistent application. 256 One commenter sought clarification of whether the definition

encompasses accidental incidents, such as chance technology outages, that do not involve a

252
Id. at 16601.
253
See letters from ABA; BPI et al.; Chamber et al.; Davis Polk; Enbridge; FDD; FEI; Hunton; PWC; SCG;
SIFMA.
254
See letters from BPI et al.; Hunton.
255
See letter from BPI et al. (“The word ‘jeopardizes’ should be replaced with ‘results in substantial loss of’ to
capture incidents that are causing some actual harm, and to better harmonize the definition with the reporting
standard set forth by Congress in CIRCIA.”).
256
See letters from Deloitte; SIFMA.

72
malicious actor, 257 while another commenter advocated broadening the definition to any incident

materially disrupting operations, regardless of what precipitated it. 258

On “cybersecurity threat,” commenters urged narrowing the rule by replacing the

language “may result in” with “could reasonably be expected to result in” or some other

probability threshold. 259 One stated that “the use of a ‘may’ standard establishes an unhelpfully

low standard that would require registrants to establish policies and procedures to identify threats

that are potentially overbroad and not appropriately tailored to those threats that are reasonably

foreseeable.” 260 In a similar vein, two commenters objected to the language “any potential

occurrence” as over-inclusive and lacking “instructive boundaries.” 261

On “information systems,” many commenters favored replacing “owned or used by” with

“owned or operated by,” “owned or controlled by,” or like terms, so that registrants’ reporting

obligations stop short of incidents on third-party information systems. 262 A few commenters said

the definition could be construed to cover hard-copy information and should be revised to

foreclose such a reading. 263

More broadly, many commenters advised the Commission to align these definitions with

comparable definitions in other Federal laws and regulations, such as CIRCIA and NIST. 264 One

257
See letter from CSA.
258
See letter from Crindata.
259
See letters from Chevron; Debevoise; NYC Bar.
260
See letter from Debevoise.
261
See letters from Chevron; Deloitte.
262
See letters from ABA; APCIA; Business Roundtable; Chamber; Cybersecurity Coalition; ISA; ITI; NAM;
NDIA; Paylocity. Other commenters made similar arguments about third party systems without speaking
specifically to the definition, saying, for example, that registrants may not have sufficient visibility into third-
party systems and may be bound by confidentiality agreements. See letters from AIA; EIC; FAH; NMHC;
SIFMA.
263
See letters from ABA; BPI et al.; Enbridge.
264
See letters from ABA; CAQ; Chevron; FEI; IC; IIA; Microsoft; PWC; SandboxAQ; SIFMA.

73
commenter explained that “[a]ligning definitions with those in existing federal laws and

regulations would help ensure that the defined terms are consistently understood, interpreted and

applied in the relevant disclosure.” 265 However, another commenter cautioned against aligning

with definitions, such as those of NIST, that were developed with a view toward internal risk

management and response rather than external reporting; the commenter identified CIRCIA and

the Federal banking regulators’ definitions as more apposite. 266 One commenter noted that

additional proposed defined terms were included in the Commission’s rulemaking release

Cybersecurity Risk Management for Investment Advisers, Registered Investment Companies, and

Business Development Companies 267 that were not included in the Proposing Release and

recommended that we “consider whether the defined terms should be consistent.” 268

In the Proposing Release, the Commission asked whether to define other terms used in

the proposed amendments, and specifically sought comment on whether a definition of

“cybersecurity” would be useful. 269 Several commenters supported defining “cybersecurity,” 270

reasoning, for example, that any rulemaking on cybersecurity should define that baseline term; 271

that, left undefined, the term would be open to varying interpretations; 272 and that details such as

whether hardware is covered should be resolved. 273 Separately, two commenters recommended

265
See letter from ABA.
266
See letter from SCG.
267
Release No. 33-11028 (Feb. 9, 2022) [87 FR 13524 (Mar. 9, 2022)].
268
See letter from Deloitte.
269
Proposing Release at 16601.
270
See letters from BCS; Blue Lava; EIC; R. Hackman; R Street.
271
See letter from R Street.
272
See letter from Blue Lava.
273
See letter from BCS.

74
the Commission define “operational technology,” 274 with one explaining that the “proposed

definitions understandably focus on data breaches, which are a major cybersecurity threat, but

we believe an operational technology breach could have even more detrimental effects in certain

cases (such as for ransomware attacks that have impacted critical infrastructure) and warrants

disclosure guidance from the Commission.” 275

Several commenters also sought either a formal definition or more guidance on the term

“material” specific to the cybersecurity space. 276 Some read the proposal, particularly the

incident examples provided in the Proposing Release, as lowering the bar for materiality and

being overly subjective, which they indicated may result in over-reporting of cybersecurity

incidents or introduce uncertainty, and they urged the Commission to affirm the standard

materiality definition. 277 Another commenter sought cybersecurity-specific guidance on

materiality, including “concrete thresholds to assist registrants in determining materiality.” 278 A

few commenters recommended conditioning the materiality determination on the underlying

information being verified to “a high degree of confidence” and “unlikely to materially

change,” 279 while one commenter looked to replace materiality altogether with a significance

standard like that in CIRCIA. 280

c. Final Definitions

274
See letters from Chevron; EIC.
275
See letter from Chevron.
276
See letters from ACLI; AIC; AICPA; APCIA; Bitsight; Harry Broadman, Eric Matrejek, and Brad Wilson
(“Broadman et al.”); Debevoise; EIC; International Information System Security Certification Consortium
(“ISC2”); M. Barragan; NYC Bar; Prof. Perullo; R Street; SIFMA; TransUnion; Virtu.
277
See letters from APCIA; ACLI; EIC; Virtu.
278
See letter from SIFMA.
279
See letters from Debevoise; NYC Bar. See also letter from AIC (suggesting “unlikely to change,” without
“materially”).
280
See letter from National Electrical Manufacturers Association (“NEMA”).

75
 We are adopting definitions for “cybersecurity incident,” “cybersecurity threat,” and

“information systems” largely as proposed, with three modifications.

First, on “cybersecurity incident,” we are adding the phrase “or a series of related

unauthorized occurrences” to the “cybersecurity incident” definition. This reflects our guidance

in Section II.B.3 above that a series of related occurrences may collectively have a material

impact or reasonably likely material impact and therefore trigger Form 8-K Item 1.05, even if

each individual occurrence on its own would not rise to the level of materiality. Second, we are

making a clarifying edit to “information systems.” Some commenters said the definition could

be construed to cover hard-copy resources. 281 We recognize that reading is possible, if unlikely

and unintended, and we are therefore inserting “electronic” before “information resources,” to

ensure the rules pertain only to electronic resources. Third, we are making minor revisions to the

“cybersecurity threat” definition for clarity and to better align it with the “cybersecurity incident”

definition.

Accordingly, the definitions are as follows:

• Cybersecurity incident means an unauthorized occurrence, or a series of related

unauthorized occurrences, on or conducted through a registrant’s information systems

that jeopardizes the confidentiality, integrity, or availability of a registrant’s

information systems or any information residing therein.

• Cybersecurity threat means any potential unauthorized occurrence on or conducted

through a registrant’s information systems that may result in adverse effects on the

confidentiality, integrity or availability of a registrant’s information systems or any

information residing therein.

281
See letters from ABA; BPI et al.; Enbridge.

76
 • Information systems means electronic information resources, owned or used by the

registrant, including physical or virtual infrastructure controlled by such information

resources, or components thereof, organized for the collection, processing,

maintenance, use, sharing, dissemination, or disposition of the registrant’s

information to maintain or support the registrant’s operations.

We recognize commenters’ concern regarding the term “jeopardizes” in the proposed

“cybersecurity incident” definition and the resulting scope of the definition. Nonetheless, we

note that the definition is not self-executing; rather it is operationalized by Item 1.05, which is

conditioned on the incident having been material to the registrant. Typically that would entail

actual harm, though the harm may sometimes be delayed, and a material cybersecurity incident

may not result in actual harm in all instances. For example, a company whose intellectual

property is stolen may not suffer harm immediately, but it may foresee that harm will likely

occur over time as that information is sold to other parties, such that it can determine materiality

before the harm occurs. The reputational harm from a breach may similarly increase over time

in a foreseeable manner. There may also be cases, even if uncommon, where the jeopardy

caused by a cybersecurity incident materially affects the company, even if the incident has not

yet caused actual harm. In such circumstances, we believe investors should be apprised of the

material effects of the incident. We are therefore retaining the word “jeopardizes” in the

definition.

We are not persuaded that the proposed “cybersecurity incident” definition’s use of “any

information” would lead to inconsistent application of the definition among issuers or cause a

risk of over-reporting, as suggested by some commenters. As noted above, the “cybersecurity

incident” definition is operationalized by Item 1.05. Item 1.05 does not require disclosure

77
whenever “any information” is affected by an intruder. Disclosure is triggered only when the

resulting effect of an incident on the registrant is material.

We are also retaining “unauthorized” in the incident definition as proposed. In general,

we believe that an accidental occurrence is an unauthorized occurrence. Therefore, we note that

an accidental occurrence may be a cybersecurity incident under our definition, even if there is no

confirmed malicious activity. For example, if a company’s customer data are accidentally

exposed, allowing unauthorized access to such data, the data breach would constitute a

“cybersecurity incident” that would necessitate a materiality analysis to determine whether

disclosure under Item 1.05 of Form 8-K is required.

On “cybersecurity threat,” we appreciate commenters’ concerns with the proposed

definition’s use of “may result in” and “any potential occurrence.” Unlike with “cybersecurity

incident,” where the interplay of the proposed definition with proposed Item 1.05 ensured only

material incidents would become reportable, proposed Item 106(b)’s reference to “the

identification and management of risks from cybersecurity threats” was not qualified by

materiality. We are therefore adding a materiality condition to Item 106(b). As adopted, Item

106(b) will require disclosure of registrants’ processes to address the material risks of potential

occurrences that could reasonably result in an unauthorized effort to adversely affect the

confidentiality, integrity, or availability of a registrant’s information systems. Given the addition

of a materiality condition to Item 106(b), we do not believe that further revision to the

“cybersecurity threat” definition is warranted.

On “information systems,” we decline to change “owned or used by” to “owned or

operated by,” “owned or controlled by,” or similar terms advanced by commenters. Commenters

recognized that “used by” covers information resources owned by third parties. That is by

78
design: covering third party systems is essential to the working of Item 106 of Regulation S-K

and Item 1.05 of Form 8-K. As we explain above, in Section II.A.3, the materiality of a

cybersecurity incident is contingent neither on where the relevant electronic systems reside nor

on who owns them, but rather on the impact to the registrant. We do not believe that a

reasonable investor would view a significant data breach as immaterial merely because the data

are housed on a cloud service. If we were to remove “used by,” a registrant could evade the

disclosure requirements of the final rules by contracting out all of its information technology

needs to third parties. Accordingly, the definition of “information systems” contemplates those

resources owned by third parties and used by the registrant, as proposed.

In considering commenters’ suggestion to align our definitions with CIRCIA, NIST, and

other Federal regulations, we observe that there is no one standard definition for these terms, and

that regulators have adopted definitions based on the specific contexts applicable to their

regulations. Nonetheless, we also observe that the final “cybersecurity incident” definition is

already similar to the CIRCIA and NIST incident definitions, in that all three focus on the

confidentiality, integrity, and availability of information systems. 282 Our definition of

“information systems” also tracks CIRCIA and NIST, as all three cover “information resources”

that are “organized for the collection, processing, maintenance, use, sharing, dissemination, or

disposition” of information. 283 Of course, the definitions do not match precisely, but some

variation is inevitable where various Federal laws and regulations have different purposes,

contexts, and goals. We therefore find that further alignment is not needed.

282
For CIRCIA, see supra note 19, at sec. 103, 136 Stat. 1039; and 6 U.S.C. 681b(c)(2)(A)(i). For NIST, see
Incident, Glossary, NIST COMPUTER SECURITY RESOURCE CENTER, available at
https://csrc.nist.gov/glossary/term/incident.
283
For CIRCIA, see supra note 19, at sec. 103, 136 Stat. 1039; and 44 U.S.C. 3502(8). For NIST, see Information
System, Glossary, NIST COMPUTER SECURITY RESOURCE CENTER, available at
https://csrc.nist.gov/glossary/term/information_system.

79
 We decline to define any other terms. We acknowledge commenters who asked for

additional guidance regarding the application of a materiality determination to cybersecurity or

sought to replace materiality with a significance standard. As noted in the Proposing Release,

however, we expect that registrants will apply materiality considerations as would be applied

regarding any other risk or event that a registrant faces. Carving out a cybersecurity-specific

materiality definition would mark a significant departure from current practice, and would not be

consistent with the intent of the final rules. 284 Accordingly, we reiterate, consistent with the

standard set out in the cases addressing materiality in the securities laws, that information is

material if “there is a substantial likelihood that a reasonable shareholder would consider it

important” 285 in making an investment decision, or if it would have “significantly altered the

‘total mix’ of information made available.” 286 Because materiality’s focus on the total mix of

information is from the perspective of a reasonable investor, companies assessing the materiality

of cybersecurity incidents, risks, and related issues should do so through the lens of the

reasonable investor. Their evaluation should take into consideration all relevant facts and

circumstances, which may involve consideration of both quantitative and qualitative factors.

Thus, for example, when a registrant experiences a data breach, it should consider both the

immediate fallout and any longer term effects on its operations, finances, brand perception,

customer relationships, and so on, as part of its materiality analysis. We also note that, given the

fact-specific nature of the materiality determination, the same incident that affects multiple

284
See, e.g., Basic Inc. v. Levinson, 485 U.S. 224, 236 (1988) (“[a]ny approach that designates a single fact or
occurrence as always determinative of an inherently fact-specific finding such as materiality, must necessarily
be overinclusive or underinclusive”).
285
TSC Indus. v. Northway, 426 U.S. 438, 449 (1976); Matrixx Initiatives v. Siracusano, 563 U.S. 27, 38-40
(2011); Basic, 485 U.S. at 240.
286
Id. See also the definition of “material” in 17 CFR 230.405 [Securities Act Rule 405]; 17 CFR 240.12b-2
[Exchange Act Rule 12b-2].

80
registrants may not become reportable at the same time, and it may be reportable for some

registrants but not others.

We also decline to separately define “cybersecurity,” as suggested by some commenters.

We do not believe such further definition is necessary, given the broad understanding of this

term. To that end, we note that the cybersecurity industry itself appears not to have settled on an

exact definition, and because the field is quickly evolving and is expected to continue to evolve

over time, any definition codified in regulation could soon become stale as technology develops.

Likewise, the final rules provide flexibility by not defining “cybersecurity,” allowing a registrant

to determine meaning based on how it considers and views such matters in practice, and on how

the field itself evolves over time.

We decline to define “operational technology” as suggested by some commenters

because the term does not appear in the rules we are adopting.

D. Disclosure Regarding the Board of Directors’ Cybersecurity Expertise

1. Proposed Amendments

Congruent with proposed Item 106(c)(2) on the board’s oversight of cybersecurity risk,

the Commission proposed adding 17 CFR 229.407(j) (Regulation S-K “Item 407(j)”) to require

disclosure about the cybersecurity expertise, if any, of a registrant’s board members. 287 The

proposed rule did not define what constitutes expertise, given the wide-ranging nature of

cybersecurity skills, but included a non-exclusive list of criteria to consider, such as prior work

experience, certifications, and the like. As proposed, paragraph (j) would build on existing 17

CFR 229.401(e) (Regulation S-K “Item 401(e)”) (business experience of directors) and Item

407(h) (board risk oversight), and would be required in the annual report on Form 10-K and in

287
Proposing Release at 16601.

81
the proxy or information statement when action is to be taken on the election of directors. Thus,

the Proposing Release said, proposed Item 407(j) would help investors in making both

investment and voting decisions. 288

The Commission also proposed to include a safe harbor in 17 CFR 229.407(j)(2)

(Regulation S-K “Item 407(j)(2)”) providing that any directors identified as cybersecurity

experts would not be deemed experts for liability purposes, including under Section 11 of the

Securities Act. 289 This was intended to clarify that identified directors do not assume any duties,

obligations, or liabilities greater than those assumed by non-expert directors. 290 Nor would such

identification decrease the duties, obligations, and liabilities of non-expert directors relative to

identified directors. 291

2. Comments

Proposed Item 407(j) garnered significant comment. Supporters wrote that understanding

a board’s level of cybersecurity expertise is important to assessing a company’s ability to

manage cybersecurity risk. 292 For example, one commenter said “[b]oard cybersecurity expertise

serves as a useful starting point for investors to assess a company’s approach to

cybersecurity;” 293 while another commenter said investors need the Item 407(j) disclosure “[t]o

cast informed votes on directors.” 294 One comment letter submitted an academic study by the

288
Id.
289
Id. at 16602.
290
Id.
291
Id.
292
See letters from O. Borges; CalPERS; Prof. Choudhary; CII; Digital Directors Network (“DDN”); ISC2; Prof.
Lowry et al.; NACD; PRI; SANS Institute; SM4RT Secure.
293
See letter from PRI.
294
See letter from CII.

82
authors of the letter and noted that its findings “underscore the importance of understanding the

role of boards in cybersecurity oversight.” 295

By contrast, many commenters argued cybersecurity risk is not intrinsically different

from other risks that directors assess with or without specific technical expertise. 296 For example,

one reasoned that, given the “ever-changing range of risks confronting a company,” directors

require “broad-based skills in risk and management oversight, rather than subject matter

expertise in one particular type of risk.” 297 Commenters also predicted the disclosure

requirement would pressure companies to retain cybersecurity experts on their board, and

submitted there is not enough cybersecurity talent in the marketplace at this time for all or most

companies to do so. 298 One of these commenters further contended that finding such expertise

will be harder for smaller reporting companies. 299 Another commenter warned that, given the

current cybersecurity talent pool, the end result may be lower diversity on boards; 300 and one said

hiring cybersecurity experts to the board may come at the expense of spending on a company’s

cybersecurity defenses. 301 Commenters also expressed concern that the identified expert

295
See letter from Prof. Lowry et al.
296
See letters from ABA; ACC; AGA/INGAA; AICPA; Auto Innovators; BDO; BPI et al.; Business Roundtable;
CAQ; CBA; Chamber; CTA; CTIA; Davis Polk; Deloitte; EEI; EIC; Hunton; ITI; IC; LTSE; Microsoft; Nareit;
NAM; NDIA; NRA; NYSE; PPG; Safe Security; SCG; SIFMA; TechNet; USTelecom; Virtu; Wilson Sonsini.
See also IAC Recommendation.
297
See letter from ABA.
298
See letters from ACC; APCIA; BIO; Blue Lava; Chamber; FDD; ITI (May 9, 2022); NDIA; NYSE; SCG (May
9, 2022). In this vein, a commenter requested the Commission affirm Item 407(j) is only a disclosure provision
and is not intended to mandate cybersecurity expertise on the board. See letter from Federated Hermes.
299
See letter from BIO.
300
See letter from Chamber (“An unintended consequence of the SEC proposal is likely to create new barriers for
underrepresented groups to move into cybersecurity leadership roles largely due to the expense of obtaining
credentials and other formal certifications. The costs associated with obtaining cybersecurity-related degrees
and other credentials could hinder the advancement of individuals who could otherwise rise through the ranks
within the field of cybersecurity.”).
301
See letter from Wilson Sonsini.

83
directors would face elevated risks, such as being targeted by nation states for surveillance or

hackers attempting to embarrass them, thus creating a disincentive to board service. 302

More generally, sentiment among those opposed to Item 407(j) was that the rule is overly

prescriptive and in effect would direct how companies operate their cybersecurity programs. 303

As an alternative, some commenters pushed for other ways to show competency, such as

identifying outside experts the board relies on for cybersecurity expertise, disclosing how

frequently the board meets with the chief information security officer, listing relevant director

training, and relying on adjacent technology skills. 304

Whether they supported or opposed the proposed disclosure requirement, commenters

largely endorsed the proposed Item 407(j)(2) safe harbor; its absence, they said, could make

candidates with cybersecurity expertise reluctant to serve on boards. 305 Two commenters

requested the Commission define “cybersecurity expertise;” 306 one of them said being “duly

accredited and certified as a cybersecurity professional” should be a prerequisite, and posited

specific industry certifications to establish expertise. 307 Another commenter suggested adding

participation in continuing education to the 17 CFR 229.407(j)(1)(i) factors considered in

assessing expertise. 308

302
See letters from BIO; Chevron; EEI; EIC; Hunton; Profs. Rajgopal & Sharp.
303
See, e.g., letter from ACC.
304
See letters from AGA/INGAA; BPI et al.; Business Roundtable; DDN; LTSE; PRI; Wilson Sonsini.
305
See letters from ABA; BIO; CII; CSA; A. Heighington; NACD; Paylocity; Prof. Perullo.
306
See letters from Federated Hermes; ISC2.
307
See letter from ISC2.
308
See letter from SandboxAQ.

84
 3. Final Amendments

After considering the comments, we are not adopting proposed Item 407(j). We are

persuaded that effective cybersecurity processes are designed and administered largely at the

management level, and that directors with broad-based skills in risk management and strategy

often effectively oversee management’s efforts without specific subject matter expertise, as they

do with other sophisticated technical matters. While we acknowledge that some commenters

indicated that the proposed Item 407(j) information would be helpful to investors, we

nonetheless agree that it may not be material information for all registrants. We believe

investors can form sound investment decisions based on the information required by Items

106(b) and (c) without the need for specific information regarding board-level expertise. And to

that end, a registrant that has determined that board-level expertise is a necessary component to

the registrant’s cyber-risk management would likely provide that disclosure pursuant to Items

106(b) and (c).

E. Disclosure by Foreign Private Issuers

1. Proposed Amendments

The Commission proposed to establish disclosure requirements for FPIs parallel to those

proposed for domestic issuers in Regulation S-K Items 106 and 407(j) and Form 8-K Item

1.05. 309 Specifically, the Commission proposed to amend Form 20-F to incorporate the

requirements of proposed Item 106 and 407(j) to disclose information regarding an FPI’s

cybersecurity risk management, strategy, and governance. 310 With respect to incident disclosure,

309
Proposing Release at 16602. The Commission did not propose to amend Form 40-F, choosing rather to
maintain the multijurisdictional disclosure system (“MJDS”) whereby eligible Canadian FPIs use Canadian
disclosure standards and documents to satisfy SEC registration and disclosure requirements.
310
As noted in the Proposing Release, FPIs would include the expertise disclosure only in their annual reports, as
they are not subject to Commission rules for proxies and information statements.

85
the Commission proposed to: (1) amend General Instruction B of Form 6-K to reference material

cybersecurity incidents among the items that may trigger a current report on Form 6-K, 311 and (2)

amend Form 20-F to require updated disclosure regarding incidents previously disclosed on

Form 6-K.

2. Comments

A few commenters agreed that the Commission should not exempt FPIs from the

proposed disclosure requirements, given they face the same threats as domestic issuers. 312

Another commenter said the Commission should not delay compliance for FPIs, for similar

reasons. 313 On the other hand, one commenter said the proposal would disproportionately burden

FPIs because, under its reading of the proposed amendment to General Instruction B, Form 6-K

would require disclosure of all cybersecurity incidents, not just those that are material. 314 The

commenter went on to say that the interplay of the European Union’s Market Abuse Regulation

(“MAR”) would render the proposed Form 6-K amendment particularly taxing, because MAR

requires immediate announcement of non-public price sensitive information. 315

On MJDS filers, commenters endorsed the Commission’s determination not to propose to

amend Form 40-F, maintaining that Canadian issuers eligible to use MJDS should be permitted

to follow their domestic disclosure standards, consistent with other disclosure requirements for

those registrants. 316

311
A registrant is required under Form 6-K to furnish copies of all information that it: (i) makes or is required to
make public under the laws of its jurisdiction of incorporation, (ii) files, or is required to file under the rules of
any stock exchange, or (iii) otherwise distributes to its security holders.
312
See letters from CSA; Cybersecurity Coalition; Prof. Perullo; Tenable.
313
See letter from Crindata.
314
See letter from SIFMA.
315
Id.
316
See letters from ACLI; BCE; Cameco Corporation; CBA; Sun Life Financial Inc.

86
 3. Final Amendments

We are adopting the Form 20-F and Form 6-K amendments as proposed, with

modifications that are consistent with those being applied to Item 106 of Regulation S-K and

Item 1.05 of Form 8-K. We continue to believe that FPIs’ cybersecurity incidents and risks are

not any less important to investors’ capital allocation than those of domestic registrants. We also

do not find that the Form 6-K amendments unduly burden FPIs. Importantly, the language the

Commission proposed to add to General Instruction B (“cybersecurity incident”) of Form 6-K

would be modified by the existing language “that which is material with respect to the issuer and

its subsidiaries concerning.” Nonetheless, for added clarity, we are including the word

“material” before “cybersecurity incident.” Thus, for a cybersecurity incident to trigger a

disclosure obligation on Form 6-K, the registrant must determine that the incident is material, in

addition to meeting the other criteria for required submission of the Form. 317 Even registrants

subject to the European Union’s MAR will first have developed the relevant information for

foreign disclosure or publication under MAR, so any added burden for preparing and furnishing

the Form 6-K should be minor. As the Commission stated in the Proposing Release, we do not

find reason to adopt prescriptive cybersecurity disclosure requirements for Form 40-F filers,

given that the MJDS generally permits eligible Canadian FPIs to use Canadian disclosure

standards and documents to satisfy the Commission’s registration and disclosure requirements. 318

We note that such filers are already subject to the Canadian Securities Administrators’ 2017

guidance on the disclosure of cybersecurity risks and incidents. 319

317
See supra note 311 for the other criteria.
318
Proposing Release at 16603.
319
Canadian Securities Administrators, CSA Multilateral Staff Notice 51-347 – Disclosure of cyber security risks
and incidents (Jan. 19, 2017).

87
 F. Structured Data Requirements

1. Proposed Amendments

The Commission proposed to mandate that registrants tag the new disclosures in Inline

XBRL, including by block text tagging narrative disclosures and detail tagging quantitative

amounts. 320 The Proposing Release explained that the structured data requirements would make

the disclosures more accessible to investors and other market participants and facilitate more

efficient analysis. 321 The proposed requirements would not be unduly burdensome to registrants,

the release posited, because they are similar to the Inline XBRL requirements for other

disclosures. 322

2. Comments

Commenters largely supported the proposal to require Inline XBRL tagging of the new

disclosures, as structured data would enable automated extraction and analysis. 323 Opposition to

the requirement centered on filer burden, including an argument that, given the time-sensitive

nature of the Item 1.05 Form 8-K disclosure, mandating structured data tagging would unduly

add to companies’ burden in completing timely reporting. 324

3. Final Amendments

After considering comments, we are adopting the structured data requirements as

proposed, with a staggered compliance date of one year. 325 We are not persuaded that Inline

320
Proposing Release at 16603.
321
Id.
322
Id.
323
See letters from AICPA; CAQ; Crowe LLP; E&Y; FDD; K. Fuller; NACD; PWC; Professors Lawrence
Trautman & Neal Newman; XBRL US.
324
See letters from NYC Bar; SFA.
325
We have incorporated modifications of a technical nature to the regulatory text.

88
XBRL tagging will unduly add to companies’ burden in preparing and filing Item 1.05 Form 8-K

in a timely fashion, and we believe such incremental costs are appropriate given the significant

benefits to investors. Compared to the Inline XBRL tagging companies will already be

performing for their financial statements, the tagging requirements here are less extensive and

complex. Inline XBRL tagging will enable automated extraction and analysis of the information

required by the final rules, allowing investors and other market participants to more efficiently

identify responsive disclosure, as well as perform large-scale analysis and comparison of this

information across registrants. 326 The Inline XBRL requirement will also enable automatic

comparison of tagged disclosures against prior periods. If we were not to adopt the Inline XBRL

requirement as suggested by some commenters, some of the benefit of the new rules would be

diminished. However, we are delaying compliance with the structured data requirements for one

year beyond initial compliance with the disclosure requirements. This approach should both help

lessen any compliance burden and improve data.

G. Applicability to Certain Issuers

1. Asset-Backed Issuers

The Commission proposed to amend Form 10-K to clarify that an asset-backed issuer, as

defined in 17 CFR 229.1101 (Regulation AB “Item 1101”), that does not have any executive

officers or directors may omit the information required by proposed Item 106(c). 327 The

Commission noted that asset-backed issuers would likewise be exempt from proposed Item

326
These considerations are generally consistent with objectives of the recently enacted Financial Data
Transparency Act of 2022, which directs the establishment by the Commission and other financial regulators of
data standards for collections of information, including with respect to periodic and current reports required to
be filed or furnished under Exchange Act Sections 13 and 15(d). Such data standards must meet specified
criteria relating to openness and machine-readability and promote interoperability of financial regulatory data
across members of the Financial Stability Oversight Council. See James M. Inhofe National Defense
Authorization Act for Fiscal Year 2023, P.L. 117-263, tit. LVIII, 136 Stat. 2395, 3421-39 (2022).
327
Proposing Release at 16600.

89
407(j) pursuant to existing Instruction J to Form 10-K. 328 The Commission further requested

comment on whether to generally exempt asset-backed issuers from the proposed rules.

One commenter stated that the proposed rules should not apply to issuers of asset-backed

securities, given that they are limited purpose or passive special purpose vehicles with limited

activities, no operations or businesses, and no information systems. 329 The commenter also

opposed applying the proposed rules to other transaction parties (such as the sponsor, servicer,

originator, and trustee), because such parties are neither issuers of nor obligors on an asset-

backed security, and “it is extraordinarily unlikely that a transaction party’s financial

performance or position would be impacted by a cybersecurity incident to such an extent as to

impede its ability to perform its duties and responsibilities to the securitization transaction.” 330

The commenter acknowledged that cybersecurity disclosure rules may make sense for servicers

of asset-backed securities, but counseled that any new rules should be tailored to such entities,

rather than applying the proposed rules. 331

We are exempting asset-backed securities issuers from the final rules. 332 We agree with

the commenter that the final rules would not result in meaningful disclosure by asset-backed

issuers. In particular, we are persuaded by the fact that asset-backed issuers are typically special

purpose vehicles whose activities are limited to receiving or purchasing, and transferring or

selling, assets to an issuing entity 333 and, accordingly, do not own or use information systems,

328
Id. at 16601.
329
See letter from SFA.
330
Id.
331
Id.
332
See General Instruction G to Form 8-K, and General Instruction J to Form 10-K.
333
See letter from SFA (citing the definitions contained in 17 CFR 229.1101(b), 17 CFR 230.191, and 17 CFR
240.3b-19).

90
whereas the final rules are premised on an issuer’s ownership or use of information systems. 334

To the extent that a servicer or other party to an asset-backed security transaction is a public

company, it will be required to comply with the final rules with respect to information systems it

owns or uses. Therefore, an investor in an asset-backed security who wants to assess the

cybersecurity of transaction parties will be able to do so for those that are public companies. The

Commission may consider cybersecurity disclosure rules specific to asset-backed securities at a

later date.

2. Smaller Reporting Companies

In the Proposing Release, the Commission did not include an exemption or alternative

compliance dates or transition accommodations for smaller reporting companies, but it did

request comment on whether to do so. 335 The Commission noted that smaller companies may

face equal or greater cybersecurity risk than larger companies, such that cybersecurity

disclosures may be particularly important for their investors. 336

A few commenters advocated an exemption for smaller reporting companies, asserting

that they face outsized costs from the proposal and lower cybersecurity risk. 337 And some

commenters called for a longer compliance phase-in period for smaller reporting companies, to

help them mitigate their cost burdens and benefit from the compliance and disclosure experience

of larger companies. 338 Other commenters opposed an exemption for smaller reporting

334
The definition of “cybersecurity incident” focuses on “a registrant’s information systems.” Likewise, the
definition of “cybersecurity threat” concerns “a registrant’s information systems or any information residing
therein.”
335
Proposing Release at 16601.
336
Id. at 16613.
337
See letters from BIO; NDIA.
338
See letters from BIO; BDO; NACD; Nasdaq. In addition, the Commission’s Small Business Capital Formation
Advisory Committee highlights generally in its parting perspectives letter that “exemptions, scaling, and phase-

91
companies, 339 in part because they may face equal 340 or greater 341 cybersecurity risk than larger

companies, or because investors’ relative share in a smaller company may be higher, such that

small companies’ cybersecurity risk “may actually embody the most pressing cybersecurity risk

to an investor.” 342

Consistent with the proposal, we decline to exempt smaller reporting companies. We

believe the streamlined requirements of the final rules will help reduce some of the costs

associated with the proposal for all registrants, including smaller reporting companies. Also, we

do not believe that an additional compliance period is needed for smaller reporting companies

with respect to Item 106, as this information is factual in nature regarding a registrant’s existing

cybersecurity strategy, risk management, and governance, and so should be readily available to

those companies to assess for purposes of preparing disclosure. Finally, given the significant

cybersecurity risks smaller reporting companies face and the outsized impacts that cybersecurity

incidents may have on their businesses, their investors need access to timely disclosure on

material cybersecurity incidents and the material aspects of their cybersecurity risk management

and governance. However, we agree with commenters that stated smaller reporting companies

would likely benefit from additional time to comply with the incident disclosure requirements.

ins for new requirements where appropriate, allows smaller companies to build their businesses and balance the
needs of companies and investors while promoting strong and effective U.S. public markets.” See Parting
Perspectives Letter, U.S. Securities and Exchange Commission Small Business Capital Formation Advisory
Committee (Feb. 28, 2023), available at https://www.sec.gov/files/committee-perspectives-letter-022823.pdf.
See also U.S. Securities and Exchange Commission Office of the Advocate for Small Business Capital
Formation, Annual Report Fiscal Year 2022 (“2022 OASB Annual Report”), available at
https://www.sec.gov/files/2022-oasb-annual-report.pdf, at 83 (recommending generally that in engaging in
rulemaking that affects small businesses, the Commission tailor the disclosure and reporting framework to the
complexity and size of operations of companies, either by scaling obligations or delaying compliance for the
smallest of the public companies).
339
See letters from CSA; Cybersecurity Coalition; NASAA; Prof. Perullo; Tenable.
340
See letter from Cybersecurity Coalition.
341
See letters from NASAA and Tenable.
342
See letter from Prof. Perullo.

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Accordingly, as discussed below, we are providing smaller reporting companies an additional

180 days from the non-smaller reporting company compliance date before they must begin

complying with Item 1.05 of Form 8-K.

H. Need for New Rules and Commission Authority

Some commenters argued that the 2011 Staff Guidance and 2018 Interpretive Release are

sufficient to compel adequate cybersecurity disclosure, obviating the need for new rules. 343 In

this regard, two commenters highlighted the Proposing Release’s statement that cybersecurity

disclosures “have improved since the issuance of the 2011 Staff Guidance and the 2018

Interpretive Release.” 344 Another commenter said that Commission staff’s findings that certain

cybersecurity incidents were reported in the media but not disclosed in a registrant’s filings and

that registrants’ disclosures provide different levels of specificity suggested that “existing

guidance is working, because each registrant should always be conducting an individualized,

case-by-case analysis” and therefore disclosures “should expectedly vary significantly.” 345 One

commenter questioned whether the materials cited in the Proposing Release support the

Commission’s conclusion there that current cybersecurity reporting may be inconsistent, not

timely, difficult to locate, and contain insufficient detail. 346 Two commenters recommended that

the Commission “reemphasize” the prior guidance and “utilize its enforcement powers to ensure

343
See letters from BPI et al.; CTIA; ISA; ITI; SCG; SIFMA; Virtu.
344
See letters from Virtu (citing Proposing Release at 16594); BPI et al. (pointing to the Proposing Release’s
citation of Stephen Klemash and Jamie Smith, What companies are disclosing about cybersecurity risk and
oversight, EY (Aug. 10, 2020), available at https://www.ey.com/en_us/board-matters/whatcompanies-are-
disclosing-about-cybersecurity-riskand-oversight).
345
See letter from ITI.
346
See letter from BPI et al. (discussing Moody’s Investors Service, Research Announcement, Cybersecurity
disclosures vary greatly in high-risk industries (Oct. 3, 2019); NACD et al., The State of Cyber-Risk
Disclosures of Public Companies (Mar. 2021), at 3).

93
public companies continue to report material cyber incidents.” 347 One commenter provided the

results from a survey it conducted of its members, finding that “only 10-20% of the 192

respondents reported that their shareholders have requested information or asked a question on”

various cybersecurity topics, while “64.3% of the respondents indicated that their investors had

not engaged with them” on those topics. 348 Another commenter pointed to a 2022 study finding

that less than 1% of cybersecurity breaches are “material,” and asserted that current disclosures

adequately reflect such a level of material breaches. 349 Some commenters also stated that the

Commission should forgo regulation of cybersecurity disclosure because other agencies’

regulations are sufficient. 350

Other commenters, by contrast, stated that the 2011 Staff Guidance and the 2018

Interpretive Release, while helpful, have not been sufficient to provide investors with the

material information they need. One such commenter explained that “[t]he Commission’s past

guidance, while in line with our views, does not go far enough. The Proposed Rule is needed to

provide clarity regarding what, when, and how to disclose material cybersecurity incident

information . . . The improved standardization of disclosures included in the Proposed Rule adds

clarity to the reporting process.” 351 Another commenter stated that “[t]he lack of timely,

347
See letters from Virtu; SIFMA.
348
See letter from SCG.
349
See letter from ISA.
350
See, e.g., letters from CTIA (“The wireless industry is also regulated by the FCC, in several relevant respects . .
. In addition to FCC requirements, wireless carriers comply with disclosure obligations under state law, which
may require notices to individual consumers and state regulators. Providers are also subject to FCC reporting
requirements regarding network outages.”); Sen. Portman (“Congress intended that the Cyber Incident
Reporting for Critical Infrastructure Act be the primary means for reporting of cyber incidents to the Federal
Government, that such reporting be through CISA, and that the required rule occupy the space regarding cyber
incident reporting”); SIFMA (stating the proposal “is unwarranted in light of other, existing regulations and the
Commission’s lack of statutory responsibility for cybersecurity regulation of public companies”).
351
See letter from CalPERS. Accord letter from Better Markets (“Even in instances where a company discloses
relevant cybersecurity incidents, board and management oversights and abilities, and policies and procedures in

94
comprehensive disclosure of material cyber events exposes investors and the community at large

to potential harm.” 352

As the Commission explained in the Proposing Release, Commission staff has observed

insufficient and inconsistent cybersecurity disclosure notwithstanding the prior guidance. 353

Here, in response to commenters, we emphasize that the final rules supplement the prior

guidance but do not replace it. The final rules are aimed at remedying the lack of material

cybersecurity incident disclosure, and the scattered, varying nature of cybersecurity strategy, risk

management, and governance disclosure, the need for which some commenters confirmed. 354

The final rules therefore add an affirmative cybersecurity incident disclosure obligation, and they

centralize cybersecurity risk management, strategy, and governance disclosure. While we

acknowledge commenters who noted the improvements to certain cybersecurity-related

disclosures in response to the 2018 Interpretive Release, and we agree there have been

improvements in the areas that the guidance touched upon, we note that the guidance does not

mandate consistent or comparable public disclosure of material incidents or otherwise address

the topics that are the subject of the final rules. And in response to commenters who suggested

that other agencies’ rules on cybersecurity reporting are sufficient, we note that, unlike the final

rules, such rules are not tailored to the informational needs of investors; instead, they focus on

the needs of regulators, customers, and individuals whose data have been breached.

Accordingly, we believe the final rules are necessary and appropriate in the public interest and

a comprehensive manner, the information is scattered throughout various sections of the Form 10-K. While the
2018 guidance adopted by the Commission successfully identified potential disclosure requirements for
companies to think about when disclosing cybersecurity risks, governance, and incidents, it did not solve the
problem confronting investors who must search various sections of the Form 10-K for the disclosures.”).
352
See letter from CII.
353
Proposing Release at 16594, 16599, 16603.
354
See supra notes 351 and 352.

95
for the protection of investors, consistent with the Commission’s authority.

We also note that the 2018 Interpretive Release remains in place, as it treats a number of

topics not covered by the new rules. Those topics include, for instance, incorporating

cybersecurity-related information into risk factor disclosure under Regulation S-K Item 105, into

management’s discussion and analysis under Regulation S-K Item 303, into the description of

business disclosure under Regulation S-K Item 101, and, if there is a relevant legal proceeding,

into the Regulation S-K Item 103 disclosure. 355 The 2018 Interpretive Release also notes the

Commission’s expectation that, consistent with Regulation S-X, a company’s financial reporting

and control systems should be designed to provide reasonable assurance that information about

the range and magnitude of the financial impacts of a cybersecurity incident would be

incorporated into its financial statements on a timely basis as that information becomes

available. 356

With respect to the Commission’s authority to adopt the final rules, some commenters

asserted that the Commission does not have the authority to regulate cybersecurity disclosure. 357

These commenters argued that the Proposing Release did not adequately explain which statutory

provisions the Commission was relying on to propose the disclosure requirements, that the

statutory provisions the Commission did identify do not provide a legal basis to require the

proposed disclosures, that the release did not show the requirements were necessary or

appropriate to achieve statutory goals, and that the requirements implicate the major questions

doctrine and non-delegation principles. Additionally, one commenter stated that “Congress

355
See 2018 Interpretive Release.
356
Id.
357
See letters from International Association of Drilling Contractors; NRF; Virtu.

96
intended that [CIRCIA] be the primary means for reporting of cyber incidents to the federal

government.” 358

We disagree. Disclosure to investors is a central pillar of the Federal securities laws.

The Securities Act of 1933 “was designed to provide investors with full disclosure of material

information concerning public offerings of securities.” 359 In addition, the Securities Exchange

Act of 1934 imposes “regular reporting requirements on companies whose stock is listed on

national securities exchanges.” 360 Together, the provisions of the Federal securities laws

mandating release of information to the market—and authorizing the Commission to require

additional disclosures—have prompted the Supreme Court to “repeatedly” describe “the

fundamental purpose” of the securities laws as substituting “a philosophy of full disclosure for

the philosophy of caveat emptor.” 361 This bedrock principle of “[d]isclosure, and not

paternalistic withholding of accurate information, is the policy chosen and expressed by

Congress.” 362 Moreover, “[u]nderlying the adoption of extensive disclosure requirements was a

358
See letter from Sen. Portman. We address this comment in Section II.A.3, supra.
359
Ernst & Ernst v. Hochfelder, 425 U.S. 185, 195 (1976); accord Pinter v. Dahl, 486 U.S. 622 (1988) (“[t]he
primary purpose of the Securities Act is to protect investors by requiring publication of material information
thought necessary to allow them to make informed investment decisions concerning public offerings of
securities in interstate commerce”).
360
Ernst & Ernst, 425 U.S. at 195 (1976); see also Lawson v. FMR LLC, 571 U.S. 429, 451 (2014) (referring to the
Sarbanes-Oxley Act’s “endeavor to ‘protect investors by improving the accuracy and reliability of corporate
disclosures made pursuant to the securities laws’” (quoting Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204,
116 Stat. 745, 745 (2002))).
361
Lorenzo v. SEC, 139 S. Ct. 1094, 1103 (2019); accord Santa Fe Indus. v. Green, 430 U.S. 462, 477-778 (1977);
Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 151 (1972); SEC v. Capital Gains Research
Bureau, Inc., 375 U.S. 180, 186 (1963).
362
Basic, 485 U.S. at 234. Congress also legislated on the core premise that “public information generally affects
stock prices,” Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258, 272 (2014), and those prices can
significantly affect the economy, 15 U.S.C. 78b(2) and (3).

97
legislative philosophy: ‘There cannot be honest markets without honest publicity. Manipulation

and dishonest practices of the market place thrive upon mystery and secrecy.’” 363

Several provisions of the Federal securities laws empower the Commission to carry out

these fundamental Congressional objectives. Under the Securities Act, the Commission has

authority to require, in a publicly filed registration statement, that issuers offering and selling

securities in the U.S. public capital markets include information specified in Schedule A of the

Act, including the general character of the issuer’s business, the remuneration paid to its officers

and directors, details of its material contracts and certain financial information, as well as “such

other information . . . as the Commission may by rules or regulations require as being necessary

or appropriate in the public interest or for the protection of investors.” 364 In addition, under the

Exchange Act, issuers of securities traded on a national securities exchange or that otherwise

have total assets and shareholders of record that exceed certain thresholds must register those

securities with the Commission by filing a registration statement containing “[s]uch information,

in such detail, as to the issuer” in respect of, among other things, “the organization, financial

structure and nature of the [issuer’s] business” as the Commission by rule or regulation

determines to be in the public interest or for the protection of investors. 365 These same issuers

must also provide “such information and documents . . . as the Commission shall require to keep

reasonably current the information and documents required to be included in or filed with [a] . . .

363
Basic, 485 U.S. at 230 (quoting H.R. Rep. No. 73-1383, at 11 (1934)); accord SEC v. Zandford, 535 U.S. 813,
819 (2002) (“Among Congress’ objectives in passing the [Exchange] Act was ‘to insure honest securities
markets and thereby promote investor confidence’ after the market crash of 1929” (quoting United States v.
O’Hagan, 521 U.S. 642, 658 (1997))); Nat’l Res. Def. Council, Inc. v. SEC, 606 F.2d 1031, 1050 (D.C. Cir.
1979) (the Securities Act and Exchange Act “were passed during an unprecedented economic crisis in which
regulation of the securities markets was seen as an urgent national concern,” and the Commission “was
necessarily given very broad discretion to promulgate rules governing corporate disclosure,” which is “evident
from the language in the various statutory grants of rulemaking authority”).
364
Securities Act Section 7(a)(1) and Schedule A.
365
Exchange Act Sections 12(b) and 12(g).

98
registration statement” as the Commission may prescribe as necessary or appropriate for the

proper protection of investors and to insure fair dealing in the security. 366 Separately, these

issuers also must disclose “on a rapid and current basis such additional information concerning

material changes in the financial condition or operations of the issuer . . . as the Commission

determines, by rule, is necessary or useful for the protection of investors and in the public

interest.” 367

These grants of authority are intentionally broad. 368 Congress designed them to give the

Commission, which regulates dynamic aspects of a market economy, the power and “flexibility”

to address problems of inadequate disclosure as they arose. 369 As the United States Court of

Appeals for the District of Columbia Circuit explained, “[r]ather than casting disclosure rules in

stone, Congress opted to rely on the discretion and expertise of the SEC for a determination of

what types of additional disclosure would be desirable.” 370

The Commission has long relied on the broad authority in these and other statutory

provisions 371 to prescribe rules to ensure that the public company disclosure regime provides

366
Exchange Act Section 13(a). Other issuers that are required to comply with the reporting requirements of
Section 13(a) include those that voluntarily register a class of equity securities under Exchange Act Section
12(g)(1) and, pursuant to Exchange Act 15(d), issuers that file a registration statement under the Securities Act
that becomes effective.
367
Exchange Act Section 13(l).
368
See Natural Resources Defense Council, Inc. v. SEC, 606 F.2d 1031, 1045 (1979); see also H.R. REP. NO. 73-
1383, at 6-7 (1934).
369
Courts have routinely applied and interpreted the Commission’s disclosure regulations without suggesting that
the Commission lacked the authority to promulgate them. See, e.g., SEC v. Life Partners Holdings, Inc., 854
F.3d 765 (5th Cir. 2017) (applying regulations regarding disclosure of risks and revenue recognition); SEC v.
Das, 723 F.3d 943 (8th Cir. 2013) (applying Regulation S-K provisions regarding related-party transactions and
executive compensation); Panther Partners Inc. v. Ikanos Commc’ns, Inc., 681 F.3d 114 (2d Cir. 2012)
(applying Item 303 of Regulation S-K, which requires disclosure of management’s discussion and analysis of
financial condition); SEC v. Goldfield Deep Mines Co., 758 F.2d 459 (9th Cir. 1985) (applying disclosure
requirements for certain legal proceedings).
370
Natural Resources Defense Council, Inc., 606 F.2d at 1045.
371
Securities Act Section 19(a); Exchange Act Section 3(b); and Exchange Act Section 23(a).

99
investors with the information they need to make informed investment and voting decisions, in

each case as necessary or appropriate in the public interest or for the protection of investors. 372

Indeed, the Commission’s predecessor agency, 373 immediately upon enactment of the Securities

Act, relied upon such authority to adopt Form A-1, precursor to today’s Form S-1 registration

statement, to require disclosure of information including, for example, a list of states where the

issuer owned property and was qualified to do business and the length of time the registrant had

been engaged in its business—topics that are not specifically enumerated in Schedule A of the

Securities Act. 374 Form A-1 also required disclosures related to legal proceedings, though there

is no direct corollary in Schedule A. 375

Consistent with the statutory scheme that Congress enacted, the Commission has

continued to amend its disclosure requirements over time in order to respond to marketplace

developments and investor needs. Accordingly, over the last 90 years, the Commission has

eliminated certain disclosure items and adopted others pursuant to the authority in Sections 7 and

19(a) of the Securities Act and Sections 3(b), 12, 13, 15, and 23(a) of the Exchange Act. Those

amendments include the adoption of an integrated disclosure system in 1982, which reconciled

372
In considering whether a particular item of disclosure is necessary or appropriate in the public interest or for the
protection of investors, the Commission considers both the importance of the information to investors as well as
the costs to provide the disclosure. In addition, when engaged in rulemaking that requires it to consider or
determine whether an action is necessary or appropriate in the public interest, the Commission also must
consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and
capital formation. See Section 2(b) of the Securities Act and Section 3(f) of the Exchange Act.
373
Prior to enactment of the Exchange Act, the Federal Trade Commission was empowered with administration of
the Securities Act.
374
Items 3 through 5 of Form A-1; see Release No. 33-5 (July 6, 1933) [not published in the Federal Register].
The Commission’s disclosure requirements no longer explicitly call for this information.
375
This early requirement called for a statement of all litigation that may materially affect the value of the security
to be offered, including a description of the origin, nature, and names of parties to the litigation. Item 17 of
Form A-1. The Commission has retained a disclosure requirement related to legal proceedings in both
Securities Act registration statements and in Exchange Act registration statements and periodic reports. 17 CFR
229.103.

100
the various disclosure items under the Securities Act and the Exchange Act and was intended to

ensure that “investors and the marketplace have been provided with meaningful, nonduplicative

information upon which to base investment decisions.” 376

In keeping with Congressional intent, the Commission’s use of its authority has

frequently focused on requiring disclosures that will give investors enhanced information about

risks facing registrants. For example, in 1980, the Commission adopted Item 303 of Regulation

S-K to require registrants to include in registration statements and annual reports a

management’s discussion and analysis of financial condition (“MD&A”). This discussion is

intended to allow investors to understand the registrant’s “financial condition, changes in its

financial condition and results of operation” through the eyes of management. 377 Item 303

includes a number of specific disclosure items, such as requiring the identification of any known

trends or uncertainties that will result in, or that are reasonably likely to result in, a material

change to the registrant’s liquidity,378 a material change in the mix and relative cost of the

registrant’s capital resources, 379 or a material impact on net sales, revenues, or income from

continuing operations. 380 Item 303 also requires registrants to “provide such other information

376
See Adoption of Integrated Disclosure System, Release No. 33-6383 (Mar. 3, 1982) [47 FR 11380 (Mar. 16,
1982)]. Even prior to the adoption of the integrated disclosure system in 1982, the Commission addressed
anticipated disclosure issues in particular areas through the use of Guides for the Preparation and Filing of
Registration Statements. See Proposed Revision of Regulation S-K and Guides for the Preparation and Filing
of Registration Statements and Reports, Release No. 33-6276 (Dec. 23, 1980) [46 FR 78 (Jan. 2, 1981)]
(discussing the use of Guides); see also Notice of Adoption of Guide 59 and of Amendments to Guides 5 and 16
of the Guides for Preparation and Filing of Registration Statements Under the Securities Act of 1933, Release
No. 33-5396 (Jun. 1, 1973) (discussing, in response to fuel shortages in 1974, the obligation to disclose any
material impact that potential fuel shortages might have and adding a new paragraph relating to disclosure by
companies engaged in the gathering, transmission, or distribution of natural gas).
377
See Management’s Discussion and Analysis of Financial Condition and Results of Operations; Certain
Investment Company Disclosures, Release No. 33-6231 (Sept. 2, 1980) [45 FR 63630 (Sept. 25, 1980)]; see
also 17 CFR 229.303(a).
378
See 17 CFR 229.303(b)(1)(i).
379
See 17 CFR 229.303(b)(1)(ii)(B).
380
See 17 CFR 229.303(b)(2)(ii).

101
that the registrant believes to be necessary to an understanding of its financial condition, changes

in financial condition, and results of operation.” 381 The Commission developed the MD&A

disclosure requirements to supplement and provide context to the financial statement disclosures

previously required by the Commission.

A few years later, in 1982, the Commission codified a requirement that dated back to the

1940s for registrants to include a “discussion of the material factors that make an investment in

the registrant or offering speculative or risky,” commonly referred to as “risk factors.” 382 By

definition, these disclosures encompass a discussion of risks, or prospective future events or

losses, that might affect a registrant or investment. The initial risk factor disclosure item

provided examples of possible risk factors, such as the absence of an operating history of the

registrant, an absence of profitable operations in recent periods, the nature of the business in

which the registrant is engaged or proposes to engage, or the absence of a previous market for

the registrant’s common equity. 383

In subsequent years, the Commission expanded both the scope of risks about which

registrants must provide disclosures and the granularity of those disclosures. For example, in

1997, the Commission first required registrants to disclose quantitative information about market

381
17 CFR 229.303(b).
382
See Adoption of Integrated Disclosure System, Release No. 33-6383 (Mar. 3, 1982) [47 FR 11380 (Mar. 16,
1982)] (“Release No. 33-6383”) (codifying the risk factor disclosure requirement as Item 503(c) of Regulation
S-K); see also 17 CFR 229.105(a). Prior to 1982, the Commission stated in guidance that, if the securities to be
offered are of a highly speculative nature, the registrant should provide “a carefully organized series of short,
concise paragraphs summarizing the principal factors that make the offering speculative.” See Release No. 33-
4666 (Feb. 7, 1964) [29 FR 2490 (Feb. 15, 1964)]. A guideline to disclose a summary of risk factors relating to
an offering was first set forth by the Commission in 1968 and included consideration of five factors that may
make an offering speculative or risky, including with respect to risks involving “a registrant’s business or
proposed business.” See Guide 6, in Guides for the Preparation and Filing of Registration Statements, Release
No. 33-4936 (Dec. 9, 1968) [33 FR 18617 (Dec. 16, 1968)] (“Release No. 33-4936”).
383
See Release No. 33-6383.

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risk. 384 That market risk disclosure included requirements to present “separate quantitative

information . . . to the extent material” for different categories of market risk, such as “interest

rate risk, foreign currency exchange rate risk, commodity price risk, and other relevant market

risks, such as equity price risk.” 385 Under these market risk requirements, registrants must also

disclose various metrics such as “value at risk” and “sensitivity analysis disclosures.” In

addition, registrants must provide certain qualitative disclosures about market risk, to the extent

material. 386

Each of these disclosure items reflects the Commission’s long-standing view that

understanding the material risks faced by a registrant and how the registrant manages those risks

can be just as important to assessing its business operations and financial condition as knowledge

about its physical assets or material contracts. Indeed, investors may be unable to assess the

value of those assets or contracts adequately without appreciating the material risks to which

they are subject. 387

In addition to risk-focused disclosures, over the decades, the Commission has also

required registrants to provide information on a diverse range of topics that emerged as

significant to investment or voting decisions, such as the extent of the board’s role in the risk

384
See Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity
Instruments and Disclosure of Quantitative and Qualitative Information About Market Risk Inherent in
Derivative Financial Instruments, Other Financial Instruments, and Derivative Commodity Instruments,
Release No. 33-7386 (Jan. 31, 1997) [62 FR 6044 (Feb. 10, 1997)] (“Release No. 33-7386”) (“In light of those
losses and the substantial growth in the use of market risk sensitive instruments, the adequacy of existing
disclosures about market risk emerged as an important financial reporting issue.”); see also 17 CFR 229.305.
385
17 CFR 229.305(a)(1).
386
See 17 CFR 229.305(b).
387
As early as the 1940s, the Commission issued stop order proceedings under Section 8(d) of the Securities Act in
which the Commission suspended the effectiveness of previously filed registration statements due, in part, to
inadequate disclosure about speculative aspects of the registrant’s business. See In the Matter of Doman
Helicopters, Inc., 41 S.E.C. 431 (Mar. 27, 1963); In the Matter of Universal Camera Corp., 19 S.E.C. 648 (June
28, 1945)); see also Release No. 33-4936.

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oversight of the registrant, 388 the effectiveness of a registrant’s disclosure controls and

procedures, 389 related-party transactions, 390 corporate governance, 391 and compensation

discussion and analysis, 392 among many other topics, including on topics related to particular

industries, 393 offering structures, 394 and types of transactions. 395 In all these instances, the

Commission’s exercise of its authority was guided by the baseline of the specific disclosures

articulated by Congress. But, as Congress expressly authorized, 396 the Commission’s exercise of

its disclosure authority has not been narrowly limited to those statutorily prescribed

disclosures—instead, it has been informed by both those disclosures and the need to protect

investors. 397 Many of these disclosures have since become essential elements of the public

company reporting regime that Congress established.

To ensure the transparency that Congress intended when it authorized the Commission to

promulgate disclosure regulations in the public interest or to protect investors, 398 the

Commission’s regulations must—as they have over time—be updated to account for changing

388
See 17 CFR 229.407.
389
See 17 CFR 229.307.
390
17 CFR 229.404.
391
17 CFR 229.407.
392
17 CFR 229.402.
393
See 17 CFR 229.1200-1208 (Disclosure by Registrants Engaged in Oil and Gas Activities); 17 CFR 1300-1305
(Disclosure by Registrants Engaged in Mining Operations); 17 CFR 1400-1406 (Disclosure by Bank and
Savings and Loan Registrants).
394
See 17 CFR Subpart 1100 (Asset-Backed Securities).
395
See 17 CFR subpart 900 (Roll-Up Transactions); 17 CFR 229.1000-1016 (Mergers and Acquisitions).
396
See supra notes 364 to 366 and accompanying text.
397
For example, Item 303(b)(2) of Regulation S-K calls for information well beyond the basic profit and loss
statement specified in Schedule A by requiring issuers to disclose any unusual or infrequent events or
transactions or any significant economic changes that materially affected the amount of reported income—and
the extent to which income was so affected—so that investors can better understand the reported results of
operations.
398
See supra notes 368 to 370 and accompanying text.

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market conditions, new technologies, new transaction structures, and emergent risks. In this

regard, we disagree with one commenter’s assertion that the Commission’s disclosure authority

is “limited to specific types of information closely related to the disclosing company’s value and

financial condition.” 399 The commenter misstates the scope and nature of the Commission’s

authority. There is a wealth of information about a company apart from that which appears in

the financial statements that is related to a company’s value and financial condition, including

the material risks (cybersecurity and otherwise) a company faces. Nor did Congress dictate that

the Commission limit disclosures only to information that is “closely related” to a company’s

“value and financial condition.” By also empowering the Commission to require “such other

information . . . as the Commission may by rules or regulations require as being necessary or

appropriate in the public interest or for the protection of investors,” 400 Congress recognized that

there is information that is vital for investors to understand in making informed investment

decisions but does not directly relate to a company’s value and financial condition. 401

The narrow reading of the Commission’s authority advocated by the commenter would

foreclose many of these longstanding elements of disclosure that market participants have come

to rely upon for investor protection and fair dealing of securities. 402 Moreover, Congress itself

has amended, or required the Commission to amend, the Federal securities laws many times. But

Congress has not restricted the Commission’s disclosure authority; rather, Congress has typically

sought to further expand and supplement that authority with additional mandated disclosures.

399
See letter from NRF.
400
Securities Act Section 7(a).
401
For example, Schedule A calls for information regarding, among other things: the names of the directors or
persons performing similar functions, the disclosure of owners of record of more than 10% of any class of stock
of an issuer; commissions paid to underwriters; the renumeration paid to directors and certain officers; and
information about certain material contracts.
402
See letter from NRF.

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 We also reject the commenter’s suggestion that the final rules are an attempt to “usurp

the undelegated role of maintaining cyber safety in America.” 403 The final rules are indifferent as

to whether and to what degree a registrant may have identified and chosen to manage a

cybersecurity risk. Rather, the final rules reflect the reality, as acknowledged by the same

commenter, that “[c]ybersecurity is . . . an area of growing importance to companies across the

world.” 404 When those companies seek to raise capital from investors in U.S. public markets, we

believe it is appropriate that they share information about whether and, if so, how they are

managing material cybersecurity risks so that investors can make informed investment and

voting decisions consistent with their risk tolerance and investment objectives.

Finally, with respect to the commenter’s contention that a broad reading of the

Commission’s disclosure authority could raise separation of powers concerns, 405 we note that a

statutory delegation is constitutional as long as Congress lays down by legislative act an

intelligible principle to which the person or body authorized to exercise the delegated authority is

directed to conform. 406 In this instance, Congress has required that any new disclosure

requirements be “necessary or appropriate in the public interest or for the protection of

investors,” 407 which has guided the Commission’s rulemaking authority for nearly a century. We

therefore believe that the final rules are fully consistent with constitutional principles regarding

separation of powers.

403
Id.
404
Id.
405
Id.
406
Gundy v. U.S., 139 S. Ct. 2116, 2123 (plurality op.).
407
See Securities Act Section 19(a) and Exchange Act Section 23(a); accord Nat’l Res. Def. Council, 606 F.2d at
1045, 1050–52.

106
 I. Compliance Dates

The final rules are effective September 5, 2023. With respect to Item 106 of Regulation

S-K and item 16K of Form 20-F, all registrants must provide such disclosures beginning with

annual reports for fiscal years ending on or after December 15, 2023. With respect to

compliance with the incident disclosure requirements in Item 1.05 of Form 8-K and in Form 6-K,

all registrants other than smaller reporting companies must begin complying on December 18,

2023. As discussed above, smaller reporting companies are being given an additional 180 days

from the non-smaller reporting company compliance date before they must begin complying

with Item 1.05 of Form 8-K, on June 15, 2024.

With respect to compliance with the structured data requirements, as noted above, all

registrants must tag disclosures required under the final rules in Inline XBRL beginning one year

after the initial compliance date for any issuer for the related disclosure requirement.

Specifically:

• For Item 106 of Regulation S-K and item 16K of Form 20-F, all registrants must begin

tagging responsive disclosure in Inline XBRL beginning with annual reports for fiscal

years ending on or after December 15, 2024; and

• For Item 1.05 of Form 8-K and Form 6-K all registrants must begin tagging responsive

disclosure in Inline XBRL beginning on December 18, 2024.

III. OTHER MATTERS

If any of the provisions of these rules, or the application thereof to any person or

circumstance, is held to be invalid, such invalidity shall not affect other provisions or application

of such provisions to other persons or circumstances that can be given effect without the invalid

provision or application.

107
 Pursuant to the Congressional Review Act, the Office of Information and Regulatory

Affairs has designated these rules as not a “major rule,” as defined by 5 U.S.C. 804(2).

IV. ECONOMIC ANALYSIS

A. Introduction

We are mindful of the costs imposed by, and the benefits to be obtained from, our rules.

Section 2(b) of the Securities Act 408 and Section 3(f) of the Exchange Act 409 direct the

Commission, when engaging in rulemaking where it is required to consider or determine whether

an action is necessary or appropriate in the public interest, to consider, in addition to the

protection of investors, whether the action will promote efficiency, competition, and capital

formation. Further, Section 23(a)(2) of the Exchange Act 410 requires the Commission, when

making rules under the Exchange Act, to consider the impact that the rules would have on

competition, and prohibits the Commission from adopting any rule that would impose a burden

on competition not necessary or appropriate in furtherance of the Exchange Act. The discussion

below addresses the economic effects of the final rules, including the likely benefits and costs, as

well as the likely effects on efficiency, competition, and capital formation.

Where possible, we have attempted to quantify the benefits, costs, and effects on

efficiency, competition, and capital formation expected to result from the final rules. In some

cases, however, we are unable to quantify the potential economic effects because we lack

information necessary to provide a reasonable estimate. For example, we lack the data to

estimate any potential decrease in mispricing that might result from the rule, because we do not

know how registrants’ disclosures of cybersecurity risk and governance will change or which

408
15 U.S.C. 77b(b).
409
15 U.S.C. 78c(f).
410
15 U.S.C. 78w(a)(2).

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cybersecurity incidents that would go undisclosed under the current guidance will be disclosed

under the final rules. Where we are unable to quantify the economic effects of the final rules, we

provide a qualitative assessment of the effects, and of the impacts of the final rule on efficiency,

competition, and capital formation. To the extent applicable, the views of commenters relevant

to our analysis of the economic effects, costs, and benefits of these rules are included in the

discussion below.

While cybersecurity incident disclosure has become more frequent since the issuance of

the 2011 Staff Guidance and 2018 Interpretive Release, there is concern that variation persists in

the timing, content, and format of registrants’ existing cybersecurity disclosure, and that such

variation may harm investors (as further discussed below). 411 When disclosures about

cybersecurity breaches are made, they may not be timely or consistent. Because of the lack of

consistency in when and how companies currently disclose incidents, it is difficult to assess

quantitatively the timeliness of disclosures under current practices. According to Audit

Analytics data, in 2021, it took on average of 42 days for companies to discover breaches, and

then it took an average of 80 days and a median of 56 days for companies to disclose a breach

after its discovery. 412 These data do not tell us when disclosure occurs relative to companies’

materiality determinations. That said, the report notes that some breaches were disclosed for the

first time to investors in periodic reports, the timing of which are unrelated to the timing of the

411
See supra Section I. See also supra note 18 and accompanying text; Eli Amir, Shai Levi, & Tsafrir Livne, Do
Firms Underreport Information on Cyber-Attacks? Evidence from Capital Markets, 23 REV. ACCT. STUD. 1177
(2018).
412
AUDIT ANALYTICS, Trends in Cybersecurity Breaches (Apr. 2022), available at
https://www.auditanalytics.com/doc/AA_Trends_in_Cybersecurity_Report_April_2022.pdf (“Audit Analytics”)
(looking specifically at disclosures by companies with SEC filing requirements and stating that:
“[c]ybersecurity breaches can result in a litany of costs, such as investigations, legal fees, and remediation.
There is also the risk of economic and reputational costs that can directly impact financial performance, such as
reduced revenue due to lost sales.”).

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incident or the company’s assessment of the materiality of the incident. This implies at least

some cybersecurity incident disclosures were not timely with respect to determination of

materiality. Because cybersecurity incidents can significantly affect registrants’ stock prices,

delayed disclosure results in mispricing of securities, harming investors. 413 Incident disclosure

practices, with respect to both location and content, currently vary across registrants. For

example, some registrants disclose incidents through Form 10-K, others Form 8-K, and still

others on a company website, or in a press release. Some disclosures do not discuss whether the

cybersecurity incident had material impact on the company. 414 Additionally, evidence suggests

registrants may be underreporting cybersecurity incidents. 415 More timely, informative, and

standardized disclosure of material cybersecurity incidents may help investors to assess an

incident’s impact better.

While disclosures about cybersecurity risk management, strategy, and governance have

been increasing at least since the issuance of the 2018 Interpretive Release, they are not currently

provided by all registrants. Despite the increasing prevalence of references to cybersecurity risks

in disclosures, however, registrants do not consistently or uniformly disclose information related

to cybersecurity risk management, strategy, and governance. 416 Registrants currently make such

disclosures in varying sections of a company’s periodic and current reports, such as in risk

factors, in management’s discussion and analysis, in a description of business and legal

proceedings, or in financial statement disclosures, and sometimes include them with other

413
See Shinichi Kamiya, et al., Risk Management, Firm Reputation, and the Impact of Successful Cyberattacks on
Target Firms, 139 J. FIN. ECON. 721 (2021).
414
Based on staff analysis of the current and periodic reports in 2022 for companies identified by having been
affected by a cybersecurity incident.
415
See BITDEFENDER, supra note 18 and accompanying text.
416
See supra Section II.C.1.b. and c.; see also letter from Better Markets.

110
unrelated disclosures. 417 One commenter noted that current disclosure is “piecemeal” in nature

and that the varying content and placement make it difficult for investors and other market

participants to locate and understand the cybersecurity risks that registrants face and their

preparedness for an attack, and to make comparisons across registrants. 418

As we discuss in more detail below, some commenters supported the proposed rule.

Specifically, one commenter noted that markets responded negatively to delayed cybersecurity

disclosures, suggesting that timeliness in disclosing incidents is valuable to investors. 419 Further,

some academic commenters submitted papers that they authored finding that evidence suggests

that companies experiencing data breaches subsequently experience higher borrowing costs. 420

On the other hand, other commenters contended that the proposed rules would hinder capital

formation, particularly for small registrants, 421 or that a more cost-effective alternative to the

proposed rules would be to look to existing rules to elicit relevant disclosures, as articulated by

the 2011 Staff Guidance and the 2018 Interpretive Release. 422 Several commenters pointed out

that the proposed disclosures on cybersecurity risk management, strategy, and governance might

be overly prescriptive and would potentially provide a roadmap for threat actors, and that these

rules could increase, not decrease costs. 423 In response to those comments, these provisions have

417
See Proposing Release at 16606 (Table 1. Incidence of Cybersecurity-Related Disclosures by 10-K Location).
418
See letter from Better Markets.
419
See letter from Prof. Choudhary.
420
See letters from Profs. Huang & Wang; Prof. Sheneman.
421
See letter from BIO.
422
See letter from NRF.
423
See letters from ABA; ACLI; APCIA; BIO; BPI et al.; Business Roundtable; Chamber; CSA; CTIA; EIC;
Enbridge; FAH; Federated Hermes; GPA; ITI; ISA; Nareit; NAM; NMHC; NRA; NRF; SIFMA; Sen. Portman;
TechNet; TransUnion; USTelecom; Virtu.

111
been modified in the final rule, which should reduce the perceived risk of providing a roadmap

for threat actors compared with the proposal.

B. Economic Baseline

1. Current Regulatory Framework

To assess the economic impact of the final rules, the Commission is using as its baseline

the existing regulatory framework and market practice for cybersecurity disclosure. Although a

number of Federal and State rules and regulations obligate registrants to disclose cybersecurity

risks and incidents in certain circumstances, the Commission’s regulations currently do not

explicitly address cybersecurity. 424

As noted in the Proposing Release, cybersecurity threats and incidents continue to

increase in prevalence and seriousness, posing an ongoing and escalating risk to public

registrants, investors, and other market participants. 425 The number of reported breaches

disclosed by public companies has increased almost 600 percent over the last decade, from 28 in

2011 to 131 in 2020 and 188 in 2021. 426 Although estimating the total cost of cybersecurity

incidents is difficult, as many events may be unreported, some estimates put the economy-wide

total costs as high as trillions of dollars per year in the U.S. alone. 427 The U.S. Council of

Economic Advisers estimated that in 2016 the total cost of cybersecurity incidents was between

424
See Proposing Release at 16593-94 for a detailed discussion of the existing regulatory framework.
425
Unless otherwise noted, when we discuss the economic effects of the final rules on “other market participants,”
we mean those market participants that typically provide services for investors and who rely on the information
in companies’ filings (such as financial analysts, investment advisers, and portfolio managers).
426
Audit Analytics, supra note 412.
427
See CYBERSECURITY & INFRASTRUCTURE SEC. AGENCY, Cost of a Cyber Incident: Systemic Review and Cross-
Validation (Oct. 26, 2020), available at https://www.cisa.gov/sites/default/files/publications/CISA-
OCE_Cost_of_Cyber_Incidents_Study-FINAL_508.pdf (based on a literature review of publications discussing
incidents that occurred in the United States or to U.S.-based companies).

112
$57 billion and $109 billion, or between 0.31 and 0.58 percent of U.S. GDP in that year. 428 A

more recent estimate suggests the average cost of a data breach in the U.S. is $9.44 million.429

Executives, boards of directors, and investors remain focused on the emerging risk of

cybersecurity. A 2022 survey of bank Chief Risk Officers found that they identified managing

cybersecurity risk as the top strategic risk. 430 In 2022, a survey of audit committee members

again identified cybersecurity as a top area of focus in the coming year. 431

In 2011, the Division of Corporation Finance issued interpretive guidance providing the

Division’s views concerning operating registrants’ disclosure obligations relating to

cybersecurity risks and incidents. 432 This 2011 Staff Guidance provided an overview of existing

disclosure obligations that may require a discussion of cybersecurity risks and cybersecurity

incidents, along with examples of potential disclosures. 433 Building on the 2011 Staff Guidance,

the Commission issued the 2018 Interpretive Release to assist operating companies in preparing

disclosure about cybersecurity risks and incidents under existing disclosure rules. 434 In the 2018

428
COUNCIL OF ECON. ADVISERS, The Cost of Malicious Cyber Activity to the U.S. Economy (Feb. 2018), available
at https://trumpwhitehouse.archives.gov/articles/cea-report-cost-malicious-cyber-activity-u-s-economy/
(estimating total costs, rather than costs of only known and disclosed incidents).
429
Ponemon Institute & IBM Security, Cost of a Data Breach Report 2022 (July 2022), available at
https://www.ibm.com/downloads/cas/3R8N1DZJ (estimating based on analysis of 550 organizations impacted
by data breaches that occurred between Mar. 2021 and Mar. 2022).
430
EY AND INSTITUTE OF INTERNATIONAL FINANCE, 12th Annual EY/IIF Global Bank Risk Management Survey, at
14 (2022), available at https://www.iif.com/portals/0/Files/content/32370132_ey-
iif_global_bank_risk_management_survey_2022_final.pdf (stating 58% of surveyed banks’ Chief Risk Officers
cite “inability to manage cybersecurity risk” as the top strategic risk). See also EY, EY CEO Imperative Study
(July 2019), available at https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/growth/ey-ceo-
imperative-exec-summ-single-spread-final.pdf.
431
CENTER FOR AUDIT QUAL. & DELOITTE, Audit Committee Practices Report: Priorities and Committee
Composition (Jan. 2023) available at https://www.thecaq.org/audit-committee-practices-report-2023/. See also
CENTER FOR AUDIT QUAL. & DELOITTE, Audit Committee Practices Report: Common Threads Across Audit
Committees (Jan. 2022), available at https://www.thecaq.org/2022-ac-practices-report/.
432
See 2011 Staff Guidance.
433
Id.
434
See 2018 Interpretive Release.

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Interpretive Release, the Commission reiterated that registrants must provide timely and ongoing

information in periodic reports (Form 10-Q, Form 10-K, and Form 20-F) about material

cybersecurity risks and incidents that trigger disclosure obligations. 435 Additionally, the 2018

Interpretive Release encouraged registrants to continue to use current reports (Form 8-K or Form

6-K) to disclose material information promptly, including disclosure pertaining to cybersecurity

matters. 436 Further, the 2018 Interpretive Release noted that to the extent cybersecurity risks are

material to a registrant’s business, the Commission believes that the required disclosure of the

registrant’s risk oversight should include the nature of the board’s role in overseeing the

management of that cybersecurity risk. 437 The 2018 Interpretive Release also stated that a

registrant’s controls and procedures should enable it to, among other things, identify

cybersecurity risks and incidents and make timely disclosures regarding such risks and

incidents. 438 Finally, the 2018 Interpretive Release highlighted the importance of insider trading

prohibitions and the need to refrain from making selective disclosures of cybersecurity risks or

incidents. 439

In keeping with existing obligations, companies are increasingly acknowledging

cybersecurity risks in their disclosures. One analysis of disclosures made by Fortune 100

companies that filed 10-Ks and proxy statements found 95 percent of those companies disclosed

a focus on cybersecurity risk in the risk oversight section of their proxy statements filed in the

435
Id. at 8168-8170.
436
Id. at 8168.
437
Id. at 8170.
438
Id. at 8171.
439
Id. at 8171-8172.

114
period ending in May 2022, up from 89 percent of filings in 2020 and 76 percent in 2018. 440

Disclosures of efforts to mitigate cybersecurity risk were found in 99 percent of proxy statements

or Forms 10-K, up from 93 percent in 2020 and 85 percent in 2018. 441 The Fortune 100 list is

composed of the highest-revenue companies in the United States. As discussed later in this

economic analysis, we observed the overall rate of disclosure across not just the largest, but all

filers, approximately 8,400, to be approximately 73 percent. 442 Further, one commenter noted

that current disclosures are “scattered and unpredictable” rather than “uniform,” which

“diminishes their effectiveness,” and so the final rule should improve investors’ ability to find

and compare disclosures. 443

Registrants currently are and may continue to be subject to other cybersecurity incident

disclosure requirements developed by various industry regulators and contractual counterparties.

As discussed in Section II, CIRCIA was passed in March 2022 and requires CISA to develop and

issue regulations on cybersecurity reporting. As set forth in CIRCIA, once those regulations are

adopted, covered entities will have 72 hours to report covered cybersecurity incidents to CISA

and will also be required to report a ransom payment as the result of a ransomware attack within

24 hours of the payment being made. 444 In addition, Federal contractors may be required to

monitor and report cybersecurity incidents and breaches or face liability under the False Claims

440
See EY CTR FOR BD MATTERS, How Cyber Governance and Disclosures are Closing the Gaps in 2022 (Aug.
2022), available at https://www.ey.com/en_us/board-matters/how-cyber-governance-and-disclosures-are-
closing-the-gaps-in-2022.
441
Id.
442
See infra note 456 (describing textual analysis) and accompanying text.
443
See letter from Better Markets. Although uniformity should improve investors’ ability to find and compare
disclosures, within that structure the final rule allows customization to capture complexity and avoid
unnecessarily simplifying issues for the sake of standardization.
444
6 U.S.C. 681b. See also supra notes 21 to 23 and accompanying text.

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Act. 445 An FCC rule directs covered telecommunications providers on how and when to disclose

breaches of certain customer data. 446 HIPAA requires covered entities and their business

associates to provide notification following a breach of unsecured protected health

information. 447 Similar rules require vendors of personal health records and related entities to

report data breaches to affected individuals and the FTC. 448 All 50 states have data breach laws

that require businesses to notify individuals of security breaches involving their personally

identifiable information. 449 There are other rules that registrants must follow in international

jurisdictions. For example, in the European Union, the General Data Protection Regulation

mandates disclosure of cybersecurity breaches. 450

These other cybersecurity incident disclosure requirements may cover some of the

material incidents that registrants will need to disclose under the final rules. However, not all

registrants are subject to each of these other incident disclosure requirements and the timeliness

and public reporting elements of these requirements vary, making it difficult for investors and

445
See DEP’T OF JUSTICE, OFFICE OF PUB. AFFAIRS, Justice News: Deputy Attorney General Lisa O. Monaco
Announces New Civil Cyber-Fraud Initiative, (Oct. 6, 2021), available at
https://www.justice.gov/opa/pr/deputy-attorney-general-lisa-o-monaco-announces-new-civil-cyber-fraud-
initiative; see, e.g., FAR 52.239-1 (requiring contractors to “immediately” notify the Federal Government if
they become aware of “new or unanticipated threats or hazards . . . or if existing safeguards have ceased to
function”).
446
See 47 CFR 64.2011; see also supra Section II.A.3.
447
See 45 CFR 164.400 through 414 (Notification in the Case of Breach of Unsecured Protected Health
Information).
448
See 16 CFR 318 (Health Breach Notification Rule).
449
Note that there are carve-outs to these rules, and not every company may fall under any particular rule. See
NAT’L CONFERENCE OF STATE LEGISLATURES, Security Breach Notification Laws (updated Jan. 17, 2022),
available at https://www.ncsl.org/technology-and-communication/security-breach-notification-laws.
450
See Regulation (EU) 2016/679, of the European Parliament and the Council of 27 Apr. 2016 on the protection
of natural persons with regard to the processing of personal data and on the free movement of such data, and
repealing Directive 95/46/EC (General Data Protection Regulation), arts. 33 (Notification of a personal data
breach to the supervisory authority), 34 (Communication of a personal data breach to the data subject), 2016
O.J. (L 119) 1 (“GDPR”).

116
other market participants to be alerted to the breaches and to gain an adequate understanding of

the impact of such incidents on a registrant.

Some registrants are also subject to other mandates regarding cybersecurity risk

management, strategy, and governance. For instance, government contractors may be subject to

the Federal Information Security Modernization Act, and use the NIST framework to manage

information and privacy risks. 451 Certain financial institutions may be subject to the FTC’s

Standards for Safeguarding Customer Information Rule, requiring an information security

program, including a qualified individual to oversee the security program, and the provision of

periodic reports on the cybersecurity program to a company’s board of directors or equivalent

governing body. 452 Under HIPAA regulations, covered entities are subject to rules that require

protection against reasonably anticipated threats to electronic protected health information. 453

International jurisdictions also have cybersecurity risk mitigation measures and governance

requirements (see, for example, the GDPR). 454 These rules and regulations provide varying

standards and requirements for disclosing cybersecurity risk management, strategy, and

governance, and may not provide investors with public or clear and comparable disclosure

regarding how a particular registrant manages its cybersecurity risk profile.

2. Affected Parties

The parties that are likely to be affected by the final rules include investors, registrants,

other market participants that use the information provided in company filings (such as financial

451
See NIST, NIST Risk Management Framework (updated Jan. 31, 2022), available at
https://csrc.nist.gov/projects/risk-management/fisma-background.
452
See 16 CFR 314.
453
See 45 CFR 164 (Security and Privacy); see also supra Section II.A.3.
454
See, e.g., GDPR, arts. 32 (Security of processing), 37 (Designation of the data protection officer).

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analysts, investment advisers, and portfolio managers), and external stakeholders such as

consumers and other companies in the same industry as affected companies.

We expect the final rules to affect all registrants with relevant disclosure obligations on

Forms 10-K, 20-F, 8-K, or 6-K. This includes (1) approximately 7,300 operating companies

filing on domestic forms (of which, approximately 120 are business development companies)

and (2) 1,174 FPIs filing on foreign forms, based on all companies that filed such forms or an

amendment thereto during calendar year 2022. 455 Our textual analysis 456 of all calendar year

2022 Form 10-K filings and amendments reveals that approximately 73 percent of domestic

filers made some kind of cybersecurity-related disclosures, whether of incidents, risk, or

governance.

We also analyzed calendar year 2022 Form 8-K and Form 6-K filings. There were

71,505 Form 8-K filings in 2022, involving 7,416 filers, out of which 35 filings reported material

cybersecurity incidents. 457 Similarly, there were 27,296 Form 6-K filings in 2022, involving

1,161 filers, out of which 22 filings reported material cybersecurity incidents.

C. Benefits and Costs of the Final Rules

The final rules will benefit investors, registrants, and other market participants, such as

financial analysts, investment advisers, and portfolio managers, by providing more timely and

informative disclosures relating to cybersecurity incidents and cybersecurity risk management,

strategy, and governance, facilitating investor decision-making and reducing information

455
Estimates of affected companies here are based on the number of unique CIKs with at least one periodic report,
current report, or an amendment to one of the two filed in calendar year 2022.
456
In performing this analysis, staff executed computer program-based keyword (and combination of key words)
searches. This analysis covered 8,405 Forms 10-K and 10-K/A available in Intelligize (a division of RELX
Inc.) filed in calendar year 2022 by 7,486 companies as identified by unique CIK.
457
The number of filers in our sample is larger than the number of estimated affected parties because, among other
reasons, it includes 8-K filings by companies that have not yet filed their first annual report.

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asymmetry in the market. The final rules also will entail costs. A discussion of the anticipated

economic costs and benefits of the final rules is set forth in more detail below. We first discuss

benefits, including benefits to investors and other market participants. We subsequently discuss

costs, including the cost of compliance with the final rules. We conclude with a discussion of

indirect economic effects on investors, external stakeholders such as consumers, and companies

in the same industry with registrants subject to this rule, or those facing similar cybersecurity

threats.

1. Benefits

Existing shareholders, and those seeking to purchase shares in registrants subject to the

final rules, will be the main beneficiaries of the enhanced disclosure of both cybersecurity

incidents and cybersecurity risk management, strategy, and governance as a result of the final

rules. Specifically, investors will benefit because: (1) more informative and timely disclosure

will improve investor decision-making by allowing investors to better understand a registrant’s

material cybersecurity incidents, material cybersecurity risks, and ability to manage such risks,

reducing information asymmetry and the mispricing of securities in the market; and (2) more

uniform and comparable disclosures will lower search costs and information processing costs.

Other market participants that rely on financial statement information to provide services to

investors, such as financial analysts, investment advisers, and portfolio managers, will also

benefit.

a. More Timely and Informative Disclosure

The final rules provide more timely and informative disclosures, relative to the current

disclosure environment, which will allow investors to better understand registrants’

cybersecurity incidents, risks, and ability to manage such risks as well as reduce mispricing of

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securities in the market. Timeliness benefits to investors will result from the requirement to

disclose cybersecurity incidents within four business days of determining an incident was

material, as well as the requirement to amend the disclosure to reflect material changes.

Information benefits to investors will result from the disclosure of both (1) cybersecurity

incidents and (2) cybersecurity risk management, strategy, and governance. Together, the

timeliness and information benefits created by the final rules will reduce market mispricing and

information asymmetry and potentially lower firms’ cost of capital.

We anticipate Item 1.05, governing cybersecurity incident disclosure on Form 8-K, will

lead to more timely disclosure to investors. 458 Currently, there is not a specific requirement for

a registrant to disclose a cybersecurity incident to investors in a timely manner after its discovery

and determination of material impact. 459 Item 1.05’s requirement to disclose a material

cybersecurity incident on Form 8-K within four business days after determining the incident is

material will improve the overall timeliness of the disclosure offered to investors—disclosure

that is relevant to the valuation of registrants’ securities. It is well-documented in the academic

literature that the market reacts negatively to announcements of cybersecurity incidents. For

example, one study finds a statistically significant mean cumulative abnormal return of -0.84

percent in the three days following cyberattack announcements, which, according to the study,

translates into an average value loss of $495 million per attack. 460 One commenter argued that

458
For foreign issuers, the disclosure is made via Form 6-K.
459
See supra Sections I and IV.B.1.
460
See Shinichi Kamiya, et al., supra note 413, at 719-749. See also Lawrence A. Gordon, Martin P. Loeb, & Lei
Zhou, The Impact of Information Security Breaches: Has There Been a Downward Shift in Costs?, 19 (1) J. OF
COMPUT. SEC. 33, 33-56 (2011) (finding “the impact of the broad class of information security breaches on
stock market returns of firms is significant”); Georgios Spanos & Lefteris Angelis, The Impact of Information
Security Events to the Stock Market: A Systematic Literature Review, 58 COMPUT. & SEC. 216-229 (2016)
(documenting that the majority (75.6%) of the studies the paper reviewed report statistical significance of the
impact of security events to the stock prices of companies). But see Katherine Campbell, et al., The Economic

120
the magnitude of stock market reaction to cybersecurity incidents from this study would not be

considered significant by market participants, stating that “if a stock had a historical standard

deviation of 1 percent and moved 0.8 percent on news, most market participants would suggest

that the news was either not significant or the market had priced in that news so the reaction was

muted.” 461 We note, however, that a cumulative abnormal return (CAR) of -0.84 percent refers

not to the total return but to the return relative to how stocks in similar industries and with

similar risk profiles moved; thus, indeed, a statistically significantly negative CAR represents a

meaningful reaction and change to how the stock price would have moved that day absent the

announcement of the cybersecurity incident. By allowing investors to make decisions based on

more current, material, information, Item 1.05 will reduce mispricing of securities and

information asymmetry in the market.

Information asymmetries due to timing could also be exploited by the malicious actors

who caused a cybersecurity incident, those who could access and trade on material information

stolen during a cybersecurity incident, or those who learn about the incident before public

disclosure, causing further harm to investors who trade unknowingly against those with inside

information. 462 Malicious actors may trade ahead of an announcement of a data breach that they

Cost of Publicly Announced Information Security Breaches: Empirical Evidence From the Stock Market, 11 (3)
J. OF COMPUT. SEC. 432, 431-448 (2003) (while finding limited evidence of an overall negative stock market
reaction to public announcements of information security breaches, they also find “the nature of the breach
affects this result,” and “a highly significant negative market reaction for information security breaches
involving unauthorized access to confidential data, but no significant reaction when the breach does not involve
confidential information;” they thus conclude that “stock market participants appear to discriminate across types
of breaches when assessing their economic impact on affected firms”).
461
See letter from BIO.
462
See Joshua Mitts & Eric Talley, Informed Trading and Cybersecurity Breaches, 9 HARV. BUS. L. REV. 1 (2019)
(“In many respects, then, the cyberhacker plays a role in creating and imposing a unique harm on the targeted
company—one that (in our view) is qualitatively different from ‘exogenous’ information shocks serendipitously
observed by an information trader. Allowing a coordinated hacker-trader team to capture these arbitrage gains
would implicitly subsidize the very harm-creating activity that is being ‘discovered’ in the first instance.”).

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caused or pilfer material information to trade on ahead of company announcements. Trading on

undisclosed cybersecurity information is particularly pernicious, because profits generated from

this type of trading provide incentives for malicious actors to “create” more incidents and

proprietary information to trade on, further harming the shareholders of impacted companies. 463

Employees or related third-party vendors of a company experiencing a cybersecurity incident

may also learn of the incident and trade against investors in the absence of disclosure. More

timely disclosure as a result of Item 1.05 will reduce mispricing by reducing windows of

information asymmetry in connection with a material cybersecurity incident, thereby reducing

opportunities to exploit the mispricing, enhancing investor protection.

A commenter noted that there is risk the rule could, under certain conditions, aid stock

manipulation efforts by malicious actors, offsetting these benefits. 464 One commenter

suggested that mandated disclosure timing could make public cybersecurity incident disclosure

dates more predictable, and thus trading strategies based on the accompanying negative stock

price reaction more consistent, to the extent malicious actors can monitor or control discovery

of breaches they cause and correctly anticipate materiality determination timing. Their ability

to do this is unclear, but we note that if the final rules increase the precision of strategies by

attackers that involve shorting the stock of their targets, that would reduce the benefit of the

final rules.

Item 1.05 allows registrants to delay filing for up to 30 days if the Attorney General

determines that the incident disclosure would pose a substantial risk to national security or public

safety and notifies the Commission of such determination in writing. The delay may be extended

463
Id.
464
See letter from ISA.

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up to an additional 30 days if the Attorney General determines disclosure continues to pose a

substantial risk to national security or public safety and notifies the Commission of such

determination in writing. In extraordinary circumstances, disclosure may be delayed for a final

additional period of up to 60 days if the Attorney General determines that disclosure continues to

pose a substantial risk to national security and notifies the Commission of such determination in

writing. Beyond the final 60-day delay, if the Attorney General indicates that further delay is

necessary, the Commission will consider additional requests for delay and may grant such relief

through Commission exemptive order. These delay periods and possible exemptive relief would

curb the timeliness benefits discussed above but would reduce the costs of premature disclosure

such as alerting malicious actors targeting critical infrastructure that their activities have been

discovered.

By requiring all material cybersecurity incidents to be disclosed, Item 1.05 will also

provide investors more informative disclosure by increasing material cybersecurity incident

disclosure. 465 There are currently reasons that registrants do not disclose cybersecurity incidents.

For example, a registrant’s managers may be reluctant to release information that they expect or

anticipate will cause their stock price to suffer. 466 Thus an agency problem prevents investors

from receiving this useful information. In addition, registrants may consider only the benefits

and costs that accrue to them when deciding whether to disclose an incident. As discussed in

Section IV.C.3, incident disclosure can create indirect economic effects that accrue to parties

other than the company itself. Companies focused on direct economic benefits, however, may

not factor in this full range of effects resulting from disclosing cybersecurity incidents, resulting

465
See Amir, Levi, & Levine, supra note 411.
466
See, e.g., Kamiya, et al., supra note 413, at 719-749.

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in less reporting and less information released to the market. The mandatory disclosure in Item

1.05 should thus lead to more incidents being disclosed, reducing mispricing of securities and

information asymmetry in the market as stock prices will more accurately reflect registrants

having experienced a cybersecurity incident.

Item 1.05 will also improve the informativeness of the content of cybersecurity incident

disclosures. In 2022, when registrants filed a Form 8-K to report an incident, the Form 8-K did

not necessarily state whether the incident was material, and in some cases, the Form 8-K stated

that the incident was immaterial. 467 Item 1.05 will require registrants to describe in an 8-K

filing the material aspects of the nature, scope, and timing of a material cybersecurity incident

and the material impact or reasonably likely material impact on the registrant, including on its

financial condition and results of operations. The disclosure must also identify any information

called for in Item 1.05(a) that is not determined or is unavailable at the time of the required

filing. Registrants will then need to disclose this information in a Form 8-K amendment

containing such information within four business days after the information is determined or

becomes available. Item 1.05 is thus expected to elicit more pertinent information to aid investor

decision-making. Additionally, the materiality requirement should minimize immaterial incident

disclosure that might divert investor attention, which should reduce mispricing of securities.

Numerous commenters on the Proposing Release agreed that more informative incident

disclosure would be useful for investors. 468

Regulation S-K Items 106(b) and (c) of the final rules provide further benefits by

requiring registrants to disclose, in their annual reports on Form 10-K, information about their

467
Based on staff analysis of the 10,941 current and periodic reports in 2022 for companies available in Intelligize
and identified as having been affected by a cybersecurity incident using a keyword search.
468
See, e.g., letters from Better Markets; CalPERS; PWC; Prof. Perullo.

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cybersecurity risk management, strategy, and governance. The final rules require disclosure

regarding a registrant’s processes, if any, for assessing, identifying, and managing material risks

from cybersecurity threats, as well as disclosure of the registrant’s board of directors’ oversight

of risks from cybersecurity threats and management’s role in assessing and managing material

risks from cybersecurity threats. 469 There are currently no disclosure requirements on Forms 10-

K or 10-Q that explicitly refer to cybersecurity risks or governance, and thus Item 106 will

benefit investors by eliciting relevant information about how registrants are managing their

material cybersecurity risks.

One commenter took issue with the usefulness of the proposed disclosures, arguing, for

example, that the particular requirement to disclose whether a registrant engages assessors,

consultants, auditors, or other third parties in connection with any cybersecurity risk assessment

program was unnecessary because there was no evidence that such third parties improved a

registrant’s cyber risk management, and some companies have internal cybersecurity risk

management capabilities. 470 Some, however, have noted that the use of independent third-party

advisors may be “vital to enhancing cyber resiliency” by validating that the risk management

program is meeting its objectives. 471 As discussed in Section II.C.1.c., it may be important for

investors to know a registrant’s level of in-house versus outsourced cybersecurity capacity.

Another commenter suggested that the requirement to disclose governance and risk management

practices would be of limited value to investors, while being administratively burdensome. 472

469
See supra Sections II.B and C. For foreign issuers, the disclosure is made via Form 20-F.
470
See letter from NRF.
471
See Harvard Law School Forum on Corporate Governance Blog, posted by Steve W. Klemash, Jamie C. Smith,
and Chuck Seets, What Companies are Disclosing About Cybersecurity Risk and Oversight, (posted Aug. 25,
2020), available at https://corpgov.law.harvard.edu/2020/08/25/what-companies-are-disclosing-about-
cybersecurity-risk-and-oversight/.
472
See letter from SIMFA.

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Other commenters said that the required disclosures about cybersecurity governance and risk

management were too granular to be useful and suggested that the specific disclosures be

replaced with a more high-level explanation of management’s and the board’s roles in

cybersecurity risk management and governance. 473 One such commenter stated that the

proposed disclosures would create pressures to provide boilerplate responses to the specific items

that would need to be disclosed instead of providing a robust discussion of the way a registrant

would manage cybersecurity risk management and governance. 474 Another commenter stated

that granular disclosures “may result in overly detailed filings that have little utility to

investors.” 475 These commenters suggested that the specific disclosures should be replaced with

a more high-level explanation of management’s and the board’s roles in cybersecurity risk

management and governance.

In response to these comments, the Commission is not adopting certain proposed

disclosure requirements, such as disclosure of whether the registrant has a designated chief

information security officer. However, Items 106(b) and (c) still require risk, strategy and

governance disclosures as we continue to believe disclosures of cybersecurity risk oversight and

processes, as well as management’s role and relevant expertise, are important to investors.

Improved timeliness and informativeness of cybersecurity disclosures may provide

further benefit by lowering companies’ cost of capital. 476 As detailed above, the final rules

473
See letters from ABA; AGA/INGAA; EEI; Nareit; NYSE.
474
See letter from ABA.
475
See letter from NYSE.
476
See Leuz & Verrecchia, The Economic Consequences of Increased Disclosure, 38 J. ACCT. RES. 91 (2000) (“A
brief sketch of the economic theory is as follows. Information asymmetries create costs by introducing adverse
selection into transactions between buyers and sellers of firm shares. In real institutional settings, adverse
selection is typically manifest in reduced levels of liquidity for firm shares (e.g., Copeland and Galai [1983],
Kyle [1985], and Glosten and Milgrom [1985]). To overcome the reluctance of potential investors to hold firm
shares in illiquid markets, firms must issue capital at a discount. Discounting results in fewer proceeds to the

126
should reduce information asymmetry and mispricing of securities. In an asymmetric

information environment, investors are less willing to hold shares, reducing liquidity.

Registrants may respond by issuing shares at a discount, increasing their cost of capital. By

providing more and more credible disclosure, however, companies can reduce the risk of adverse

selection faced by investors and the discount they demand, ultimately increasing liquidity and

decreasing the company’s cost of capital. 477 Investors benefit when the companies they are

invested in enjoy higher liquidity. Item 1.05 enables companies to provide more credible

disclosure because currently, investors do not know whether an absence of incident disclosure

means no incidents have occurred, or one has but the company has not yet chosen to reveal it.

By requiring all material incidents to be reported, Item 1.05 supplies investors greater assurance

that, indeed, barring extraordinary circumstances, no disclosure means the company has not been

aware for more than four business days of a material incident having occurred. Similarly, Item

firm and hence higher costs of capital. A commitment to increased levels of disclosure reduces the possibility
of information asymmetries arising either between the firm and its shareholders or among potential buyers and
sellers of firm shares. This, in turn, should reduce the discount at which firm shares are sold, and hence lower
the costs of issuing capital (e.g., Diamond and Verrecchia [1991] and Baiman and Verrecchia [1996]).”).
477
See Douglas W. Diamond & Robert E. Verrecchia, Disclosure, Liquidity, and the Cost of Capital, 46 J. FIN.
1325, 1325–1359 (1991) (finding that revealing public information to reduce information asymmetry can reduce
a company’s cost of capital through increased liquidity). See also Christian Leuz & Robert E. Verrecchia, The
Economic Consequences of Increased Disclosure, 38 J. ACCT. RES. 91 (2000) (providing empirical evidence
that increased disclosure lowers the information asymmetry component of the cost of capital in a sample of
German companies); see also Christian Leuz & Peter D. Wysocki, The Economics of Disclosure and Financial
Reporting Regulation: Evidence and Suggestions for Future Research, 54 J. ACCT. RES. 525 (2016) (providing
a comprehensive survey of the literature on the economic effect of disclosure). Although disclosure could be
beneficial for the company, several conditions must be met for companies to voluntarily disclose all their
private information. See Anne Beyer, et al., The Financial Reporting Environment: Review Of The Recent
Literature, 50 J. ACCT. & ECON. 296, 296-343 (2010) (discussing conditions under which companies voluntarily
disclose all their private information, and these conditions include “(1) disclosures are costless; (2) investors
know that companies have, in fact, private information; (3) all investors interpret the companies’ disclosure in
the same way and companies know how investors will interpret that disclosure; (4) managers want to maximize
their companies’ share prices; (5) companies can credibly disclose their private information; and (6) companies
cannot commit ex-ante to a specific disclosure policy”). Increased reporting could also help determine the
effect of investment on company value. See Lawrence A. Gordon, et al., The Impact of Information Sharing on
Cybersecurity Underinvestment: A Real Options Perspective, 34 (5) J. ACCT. & PUB. POLICY 509, 509-519
(2015) (arguing that “information sharing could reduce the tendency by firms to defer cybersecurity
investments”).

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106 should also generate more credible disclosure. Currently, voluntary cybersecurity risk

management, strategy, and governance disclosures lack standardization and consistency,

reducing their comparability and usefulness for investors. Without set topics that must be

addressed, companies may disclose only the strongest aspects of their cybersecurity processes, if

they disclose at all. By clarifying what registrants must disclose with respect to their

cybersecurity risk management, strategy, and governance, Item 106 will reduce information

asymmetry and provide investors and other market participants more certainty and easier

comparability of registrants’ vulnerability to and ability to manage cybersecurity breaches,

reducing adverse selection and increasing liquidity. Thus, the final rules could decrease cost of

capital across registrants and increase company value, benefiting investors.

One commenter argued that smaller registrants are less likely than larger registrants to

experience cybersecurity incidents and that cyberattacks are not material for smaller

registrants. 478 This could imply that the degree of cybersecurity-driven adverse selection faced

by investors in small registrants might be less severe. If so, the potential benefit from

improvement in liquidity and cost of capital due to the timeliness and information benefits from

the final rules might be smaller for small registrants and their investors. The research this

commenter cited to support this assertion found larger companies were more susceptible than

smaller companies to a particular category of cybersecurity incidents—those involving personal

information lost through hacking by an outside party—which composed less than one-quarter of

478
See comment letter from BIO. The letter argues that the Commission, when citing the study by Kamiya, et al.
(2021) in the Proposing Release, “ignored and omitted” the fact that the mean market capitalization of impacted
companies in this study was $58.9 billion, much higher than the average for small companies, and thus
“cyberattacks mainly affect large companies and are not material for smaller companies.” We observe that an
average market capitalization of impacted companies of $58.9 billion would generally indicate that companies
both larger and smaller than that size were impacted by cyberattacks.

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all cyber incidents in the sample (1,580 out of 6,382). 479 It is possible that malicious strategies

that target personal information are particularly suited to larger, well-known companies, and thus

the research may overstate the degree to which large companies are more susceptible to

cybersecurity incidents generally. These strategies explicitly harm companies’ customers, and

customer ill will is potentially more newsworthy and consequential for a larger, well-known

company as compared to a smaller one. In contrast, ransomware attacks that target non-personal,

internal company operations such as an information technology network, for example, are less

concerned with causing reputational loss and thus may have an optimal target profile that favors

smaller firms as much as larger firms. Additionally, smaller companies may have fewer

resources and weaker processes in place to prevent cybersecurity attacks. 480 Hence, it is not clear

that smaller companies experience fewer material cybersecurity incidents generally. Others have

noted that small companies are frequently targeted victims of cyberattacks, potentially leading to

dissolution of the business. 481 Thus, overall, we maintain that cybersecurity attacks are material

for smaller reporting companies and that the final rules will serve to benefit them and their

investors.

Overall, Form 8-K Item 1.05 and Regulation S-K Item 106 provide for timely,

informative, and up-to-date disclosure of cybersecurity incidents, as well as disclosure that may

provide insight into whether a registrant is prepared for risks from cybersecurity threats and has

adequate cybersecurity risk management, strategy, and governance measures in place to reduce

479
See Kamiya, et al., supra note 413.
480
See letter from Tenable.
481
See Testimony of Dr. Jane LeClair, Chief Operating Officer, National Cybersecurity Institute at Excelsior
College, before the U.S. House of Representatives Committee on Small Business (Apr. 22, 2015), available at
https://docs.house.gov/meetings/SM/SM00/20150422/103276/HHRG-114-SM00-20150422-SD003-U4.pdf
(describing the cybersecurity risks small businesses face and noting “fifty percent of SMB’s have been the
victims of cyberattack and over 60 percent of those attacked go out of business”).

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the likelihood of future incidents, reducing the likelihood of delayed or incomplete disclosure

and benefiting investors and the market.

We believe enhanced information, timing, and completeness of disclosures as a result of

Form 8-K Item 1.05 and Regulation S-K Item 106 will benefit not only investors but also other

market participants that rely on registrant disclosures to provide services to investors. They,

too, will be able to better evaluate registrants’ cybersecurity preparations and risks and thus

provide better recommendations. We note that the potential benefit of these amendments could

be reduced because some registrants already provide relevant disclosures. That said, we expect

this same information will become more useful due to added context from, and easier

comparisons with, the increased number of other registrants now providing these disclosures.

We are unable to quantify the potential benefit to investors and other market participants

as a result of the increase in disclosure and improvement in pricing under the final rules. Such

estimation requires information about the fundamental value of securities and the extent of the

mispricing. We do not have access to such information and therefore cannot provide a

reasonable estimate. One commenter suggested we use existing cyber disclosure models to

“empirically determine” the current degree of market mispricing, but did not suggest what data

the Commission could use to do so. 482 The Commission cannot estimate the effects of

undisclosed cybersecurity incidents that are creating market mispricing, as the relevant

information was never released and the market was unable to react.

b. Greater Uniformity and Comparability

The final rules requiring disclosure about cybersecurity incidents and cybersecurity risk

management, strategy, and governance should also lead to more uniform and comparable

482
See letter from ISA.

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disclosures, in terms of both content and location, benefiting investors by lowering their search

and information processing costs. Currently, registrants do not always use Form 8-K to report

cybersecurity incidents. Even among registrants that do, reporting practices vary widely. 483

Some provide a discussion of materiality, the estimated costs of an incident, or the remedial steps

taken as a result of an incident, while others do not provide such disclosure or provide much less

detail. Disclosures related to risk management, strategy, and governance also vary significantly

across registrants—such information could be disclosed in places such as the risk factors section,

the management’s discussion and analysis section, or not at all. For both types of disclosures,

the final rules specify the topics that registrants should disclose. As a result, both incident

disclosure and risk management, strategy, and governance disclosure should become more

uniform across registrants, making them easier for investors and other market participants to

compare. The final rules also specify the disclosure locations (e.g., Item 1C of Form 10-K),

benefiting investors and other market participants further by reducing the time, cost, and effort it

takes them to search for and retrieve information (as pointed out by commenters 484).

We note that to the extent that the disclosures related to cybersecurity risk management,

strategy, and governance become too uniform or “boilerplate,” the benefit of comparability may

be diminished. However, we believe that Item 106 requires sufficient specificity, tailored to the

registrant’s facts and circumstances, to help mitigate any tendency towards boilerplate

disclosures. Item 106 also provides a non-exclusive list of information that registrants should

disclose, as applicable, which should help in this regard.

483
See Proposing Release at 16594.
484
See, e.g., letters from Better Markets; CalPERS.

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 The requirement to tag the cybersecurity disclosure in Inline XBRL will likely augment

the informational and comparability benefits by making the disclosures more easily retrievable

and usable for aggregation, comparison, filtering, and other analysis. XBRL requirements for

public operating company financial statement disclosures have been observed to mitigate

information asymmetry by reducing information processing costs, thereby making the

disclosures easier to access and analyze. 485 While these observations are specific to operating

company financial statement disclosures and not to disclosures outside the financial statements,

such as the cybersecurity disclosures, they suggest that the Inline XBRL requirements should

directly or indirectly (i.e., through information intermediaries such as financial media, data

aggregators, and academic researchers) provide investors with increased insight into

cybersecurity-related information at specific companies and across companies, industries, and

time periods. 486 Also, unlike XBRL financial statements (including footnotes), which consist of

tagged quantitative and narrative disclosures, the cybersecurity disclosures consist largely of

tagged narrative disclosures. 487 Tagging narrative disclosures can facilitate analytical benefits

485
See, e.g., J.Z. Chen, et al., Information processing costs and corporate tax avoidance: Evidence from the SEC’s
XBRL mandate, 40 J. OF ACCT. AND PUB. POL’Y 2 (finding XBRL reporting decreases likelihood of company tax
avoidance because “XBRL reporting reduces the cost of IRS monitoring in terms of information processing,
which dampens managerial incentives to engage in tax avoidance behavior”). See also P.A. Griffin, et al., The
SEC’s XBRL Mandate and Credit Risk: Evidence on a Link between Credit Default Swap Pricing and XBRL
Disclosure, 2014 AMERICAN ACCOUNTING ASSOCIATION ANNUAL MEETING (2014) (finding XBRL reporting
enables better outside monitoring of companies by creditors, leading to a reduction in company default risk); E.
Blankespoor, The Impact of Information Processing Costs on Firm Disclosure Choice: Evidence from the XBRL
Mandate, 57 J. OF ACC. RES. 919, 919-967 (2019) (finding “firms increase their quantitative footnote disclosures
upon implementation of XBRL detailed tagging requirements designed to reduce information users’ processing
costs,” and “both regulatory and non-regulatory market participants play a role in monitoring firm disclosures,”
suggesting “that the processing costs of market participants can be significant enough to impact firms’
disclosure decisions”).
486
See, e.g., N. Trentmann, Companies Adjust Earnings for Covid-19 Costs, but Are They Still a One-Time
Expense?, WALL ST. J. (2020) (citing an XBRL research software provider as a source for the analysis described
in the article). See also Bloomberg Lists BSE XBRL Data, XBRL.org (2018); R. Hoitash, and U. Hoitash,
Measuring Accounting Reporting Complexity with XBRL, 93 ACCOUNT. REV. 259 (2018).
487
The cybersecurity disclosure requirements do not expressly require the disclosure of any quantitative values; if
a company includes any quantitative values that are nested within the required discussion (e.g., disclosing the

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such as automatic comparison or redlining of these disclosures against prior periods and the

performance of targeted artificial intelligence or machine learning assessments (tonality,

sentiment, risk words, etc.) of specific cybersecurity disclosures rather than the entire

unstructured document. 488

In addition, by formalizing the disclosure requirements related to cybersecurity incidents

and cybersecurity risk management, strategy, and governance, the final rules could reduce

compliance costs for those registrants that are currently providing disclosure about these topics.

The compliance costs would be reduced to the extent that those registrants may be currently

over-disclosing information out of caution, to increase the perceived credibility of their

disclosures, or to signal to investors that they are diligent with regard to cybersecurity. For

instance, the staff has observed that some registrants provide Form 8-K filings even when they

do not anticipate the incident will have a material impact on their business operations or financial

results. 489 By specifying that only material incidents require disclosure, the final rules should

ease some of these concerns and reduce costs to the extent those costs currently exist. 490

Investors will benefit to the extent the registrants they invest in enjoy lower compliance costs.

number of days until containment of a cybersecurity incident), those values will be individually detail tagged, in
addition to the block text tagging of the narrative disclosures.
488
To illustrate, without Inline XBRL, using the search term “remediation” to search through the text of all
companies’ filings over a certain period of time, so as to analyze the trends in companies’ disclosures related to
cybersecurity incident remediation efforts during that period, could return many narrative disclosures outside of
the cybersecurity incident discussion (e.g., disclosures related to potential environmental liabilities in the risk
factors section). Inline XBRL, however, enables a user to search for the term “remediation” exclusively within
the required cybersecurity disclosures, thereby likely reducing the number of irrelevant results.
489
Based on staff analysis of the 10,941 current and periodic reports in 2022 for companies available in Intelligize
and identified as having been affected by a cybersecurity incident using a keyword search.
490
We note that registrants may still over-disclose due to uncertainty over when a cybersecurity incident crosses
the threshold of materiality. This may impact how fully costs from immaterial incident disclosure are reduced.

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 2. Costs

We also recognize that enhanced cybersecurity disclosure would result in costs to

registrants, borne by investors. These costs include potential increases in registrants’

vulnerability to cybersecurity incidents and compliance costs. We discuss these costs below.

First, the disclosure about cybersecurity incidents and cybersecurity risk management,

strategy, and governance could potentially increase the vulnerability of registrants. Since the

issuance of the 2011 Staff Guidance, concerns have been raised that providing detailed

disclosures of cybersecurity incidents could, potentially, provide a road map for future attacks,

and, if the underlying security issues are not completely resolved, could exacerbate the ongoing

attack. 491 The concern is that malicious actors could use the disclosures to potentially gain

insights into a registrant’s practices on cybersecurity. As a result, the final incident disclosure

rules could potentially impose costs on registrants and their investors, if, for example, additional

threat actors steal more data or hamper breach resolution.

The final rules have been modified from the Proposing Release to mitigate disclosure of

details that could aid threat actors, while remaining informative for investors. Form 8-K Item

1.05 will require registrants to timely disclose material cybersecurity incidents, describe the

material aspects of the nature, scope, and timing of the incident, and, importantly, describe the

material impact or reasonably likely material impact of the incident on the registrant. Focusing

on the material impact or reasonably likely material impact of the incident rather than the

specific or technical details of the incident should reduce the likelihood of providing a road map

491
See, e.g., Roland L. Trope & Sarah Jane Hughes, The SEC Staff’s Cybersecurity Disclosure Guidance: Will It
Help Investors or Cyber-Thieves More, 2011 BUS. L. TODAY 2, 1-4 (2011).

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that threat actors can exploit for future attacks, and should reduce the risks and costs stemming

from threat actors acting in this manner. 492

Similar concerns were raised by commenters about the required risk management,

strategy, and governance disclosure. 493 Items 106(b) and (c) require registrants to provide

specified disclosure regarding their cybersecurity risk management processes and cybersecurity

governance by the management and board. The required disclosure could provide malicious

actors information about which registrants have weak processes related to cybersecurity risk

management and allow such malicious actors to determine their targets accordingly.

However, academic research so far has not provided evidence that more detailed

cybersecurity risk disclosures necessarily lead to more attacks. For example, one study finds that

measures for specificity (e.g., the uniqueness of the disclosure) do not have a statistically

significant relation with subsequent cybersecurity incidents. 494 Another study finds that

cybersecurity risk factor disclosures that involve terms about processes are less likely to be

related to future breach announcements than disclosures that employ more general language. 495

On the other hand, we note that the final rules will require more details of cybersecurity

processes than what is explicitly required under the current rules, and the uniformity of the final

rules might also make it easier for malicious actors to identify registrants with relatively weaker

492
Instruction 4 to Item 1.05 provides that a “registrant need not disclose specific or technical information about its
planned response to the incident or its cybersecurity systems, related networks and devices, or potential system
vulnerabilities in such detail as would impede the registrant’s response or remediation of the incident.”
493
See letters from ABA; ACLI; APCIA; BIO; BPI et al.; Business Roundtable; Chamber; CSA; CTIA; EIC;
Enbridge; FAH; Federated Hermes; GPA; ITI; ISA; Nareit; NAM; NMHC; NRA; NRF; SIFMA; Sen. Portman;
TechNet; TransUnion; USTelecom; Virtu; see also supra note 201 and accompanying text.
494
See He Li, Won Gyun No, & Tawei Wang, SEC's Cybersecurity Disclosure Guidance and Disclosed
Cybersecurity Risk Factors, 30 INT’L. J. OF ACCT. INFO. SYS. 40-55 (2018) (“while Ferraro (2013) criticizes that
the SEC did little to resolve the concern about publicly revealing too much information [that] could provide
potential hackers with a roadmap for successful attacks, we find no evidence supporting such claim”).
495
See Tawei Wang, Karthik N. Kannan, & Jackie Rees Ulmer, The Association Between the Disclosure and the
Realization of Information Security Risk Factors, 24.2 INFO. SYS. RES. 201, 201-218 (2013).

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processes. Therefore, these academic findings might not be generalizable to the effects of the

final rules. 496 However, we also note that we have streamlined the disclosure obligations for

Items 106 (b) and (c), in response to commenters’ concerns, to require a more principles-based

discussion of a registrant’s processes instead of detailed disclosures on a specific set of items.

This change should help ease concerns that the required cybersecurity risk management, strategy,

and governance disclosures will help malicious actors choose targets. In addition, the potential

costs resulting from the disclosure requirements might be partially mitigated to the extent that

registrants decide to enhance their cybersecurity risk management in anticipation of the increased

disclosure. This possibility is discussed below under Indirect Economic Effects.

The final rules will also impose compliance costs. Registrants, and thus their investors,

will incur one-time and ongoing costs to fulfill the new disclosure requirements under Item 106

of Regulation S-K. These costs will include costs to gather the information and prepare the

disclosures. Registrants will also incur compliance costs to fulfill the disclosure requirements

related to Form 8-K (Form 6-K for FPIs) incident disclosure. 497 These costs include one-time

costs to implement or revise their incident disclosure practices, so that any registrant that

determines it has experienced a material cybersecurity incident will disclose such incident with

the required information within four business days. Registrants may also incur ongoing costs to

disclose in a Form 8-K report any material changes or updates relating to previously disclosed

incidents, and we expect these costs to be higher for registrants with more incidents to disclose.

The costs will be mitigated for registrants whose current disclosure practices match or are similar

496
We note that the papers we cited above study the effect of voluntary disclosure and the 2011 Staff Guidance,
which could also reduce the generalizability of these studies to the mandatory disclosures under the final rules.
497
We note that the compliance costs related to Form 6-K filings will be mitigated, because a condition of the form
is that the information is disclosed or required to be disclosed elsewhere.

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to those that are in the final rules. One commenter suggested that companies could incur costs to

reconcile their existing cybersecurity activities and NIST-based best practices with the

requirements of the final rules 498 but, as discussed in Section II.C.3.c, the final rules are not in

conflict with NIST and we do not anticipate that significant reconciliation will be needed.

The compliance costs will also include costs attributable to the Inline XBRL tagging

requirements. Many commenters supported the XBRL tagging requirement, 499 while one

commenter suggested that it would be burdensome to add tagging given the time-sensitive nature

of the disclosure requirements. 500 Various preparation solutions have been developed and used

by operating companies to fulfill XBRL requirements, and some evidence suggests that, for

smaller companies, XBRL compliance costs have decreased over time. 501 The incremental

compliance costs associated with Inline XBRL tagging of cybersecurity disclosures will also be

mitigated by the fact that most companies that will be subject to the requirements are already

subject to other Inline XBRL requirements for other disclosures in Commission filings, including

financial statement and cover page disclosures in certain periodic reports and registration

498
See letter from SIFMA.
499
See letters from E&Y; CAQ; PWC; NACD; AICPA; XBRL.
500
See letter from NYC Bar.
501
An AICPA survey of 1,032 reporting companies with $75 million or less in market capitalization in 2018 found
an average cost of $5,850 per year, a median cost of $2,500 per year, and a maximum cost of $51,500 per year
for fully outsourced XBRL creation and filing, representing a 45% decline in average cost and a 69% decline in
median cost since 2014. See AICPA, XBRL Costs for Small Companies Have Declined 45% since 2014 (2018),
available at
https://us.aicpa.org/content/dam/aicpa/interestareas/frc/accountingfinancialreporting/xbrl/downloadabledocum
ents/xbrl-costs-for-small-companies.pdf. See also Letter from Nasdaq, Inc. (Mar. 21, 2019) (responding to
Request for Comment on Earnings Releases and Quarterly Reports, Release No. 33-10588 (Dec. 18, 2018) [83
FR 65601 (Dec. 21, 2018)]) (stating that a 2018 NASDAQ survey of 151 listed companies found an average
XBRL compliance cost of $20,000 per quarter, a median XBRL compliance cost of $7,500 per quarter, and a
maximum XBRL compliance cost of $350,000 per quarter).

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statements. 502 Such companies may be able to leverage existing Inline XBRL preparation

processes and expertise in complying with the cybersecurity disclosure tagging requirements.

Moreover, the one-year XBRL compliance period extension could further assuage concerns

about the transition for registrants to comply with the new requirements. 503

Some commenters contended that the Proposing Release failed to consider the costs of

the proposed rules adequately. 504 We are generally unable to quantify costs related to the final

rules due to a lack of data. For example, we are unable to quantify the impact of any increased

vulnerability to existing or new threat actors arising from the required incident or risk

management, strategy, or governance disclosures. Moreover, costs related to preparing cyber-

related disclosures are generally private information known only to the issuing firm, hence such

data are not readily available to the Commission. There is also likely considerable variation in

these costs depending on a given firm’s size, industry, complexity of operations, and other

characteristics, which makes comprehensive estimates difficult to obtain. We note that the

Commission has provided certain estimates for purposes of compliance with the Paperwork

Reduction Act of 1995, as further discussed in Section V below. Those estimates, while useful

to understanding the collection of information burden associated with the final rules, do not

purport to reflect the full costs associated with making the required disclosures.

One commenter provided a numerical cost estimate, stating the initial costs of complying

with the proposed rules would be $317.5 million to $523.4 million ($38,690 to $69,151 per

regulated company), and future annual costs would be $184.8 million to $308.1 million ($22,300

502
See 17 CFR 229.601(b)(101) and 17 CFR 232.405 (for requirements related to tagging financial statements,
including footnotes and schedules in Inline XBRL). See 17 CFR 229.601(b)(104) and 17 CFR 232.406 (for
requirements related to tagging cover page disclosures in Inline XBRL).
503
See supra Section II.I.
504
See, e.g., letters from Chamber and SIFMA.

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to $37,500 per regulated company). 505 We cannot directly evaluate the accuracy of these

estimates because the commenter did not provide any explanation for how they were derived.

We believe, however, these estimates likely significantly overstate the costs of the final rules.

First, the commenter overestimates the number of registrants who are likely to bear the

full costs of new disclosures. Converting the total and per company cost estimates to registrant

counts implies the commenter assumed these costs would be borne by approximately 8,000

companies, which would be nearly every registrant. 506 As stated in Section IV.B.2 above,

however, 73 percent of domestic filers in 2022 already made cybersecurity-related disclosures

in Form 10-K filings and amendments, and 35 Form 8-K filings disclosed material

cybersecurity incidents. 507 While the degree to which registrants’ existing disclosures already

may be in line with the requirements of the final rules varies—some registrants may need to

make significant changes while others may not, especially given the guidance from the 2018

Interpretive Release—most registrants should not bear the full costs of compliance. In addition,

while cybersecurity incident disclosure is expected to increase as a result of Item 1.05, we do not

expect that most companies will need to report in any given year. Extrapolating from the current

numbers of incidents reported—for example, public companies disclosed 188 reported breaches

in 2021 508—we expect that the overwhelming majority of registrants will not experience a

material breach and will not need to disclose cybersecurity incidents and incur the ongoing

505
See letter from Chamber.
506
$317.5 million divided by $38,690 per registrant equals 8,206 registrants; $523.4 million divided by $69,151
per registrant equals 7,569 registrants; $184.8 million divided by $22,300 per registrant equals 8,287 registrants;
$308.1 million divided by $37,500 per registrant equals 8,216 registrants. In Section IV.B.2, supra, we find the
number of affected parties to include approximately 7,300 operating companies filing on domestic forms and
1,174 FPIs filing on foreign forms.
507
See supra notes 456 and 457 and accompanying text.
508
See supra note 426 and accompanying text.

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associated costs. 509 They may, however, revisit their disclosure controls initially, to ensure they

are capturing what the rule requires.

Second, we have made changes from the proposed rules that would also reduce costs as

compared with the proposal. Some of these changes concerned aspects of the proposed rules that

the commenter noted would be burdensome. For example, the commenter states that “potential

material incidents in the aggregate would be difficult to identify and operationally challenging to

track.” 510 The commenter also states “the SEC underestimates the burdens related to tracking

‘several small but continuous cyberattacks against a company,’ which may or may not prove to

be material.” 511 These comments refer to proposed Item 106(d)(2), which would have required

disclosure when a series of previously undisclosed individually immaterial cybersecurity

incidents become material in the aggregate. In response to comments, we are not adopting this

aspect of the proposal and instead have added “a series of related unauthorized occurrences” to

the definition of “cybersecurity incident,” which may help address this concern about the burden

of the proposal. The comment letter also stated that “cybersecurity talent is scar[c]e globally.

From a personnel standpoint, it’s unclear where companies would get the so-called cybersecurity

experts that the proposed regulation would mandate. There is a well-documented lack of

cybersecurity talent for the public and private sectors that would unquestionably affect

companies’ recruitment of board cybersecurity experts.” 512 We are not adopting proposed 407(j)

about the cybersecurity expertise, if any, of a registrant’s board members, which may have

factored into the commenter’s cost estimates. Additionally, the proposal would not have

509
This conclusion is based on relative quantities. Note that 188 is very small relative to the total number of
registrants, 8,474, from Section IV.B.2 (188 divided by 8,474 is roughly 2%).
510
See letter from Chamber.
511
Id.
512
Id.

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mandated recruitment of cybersecurity experts, only disclosure of their presence. Additional

streamlining of requirements in the final rules (e.g., reduced granularity of cybersecurity incident

disclosure requirements) should further reduce costs from what might have been estimated using

the Proposing Release.

Another commenter stated that the Commission’s calculation of costs and benefits does

not adequately address the impact of different but overlapping disclosure and reporting

requirements that may escalate burdens and costs. 513 We acknowledge the possibility that to the

extent different information has to be reported pursuant to different regulations, laws, or other

requirements, there could be a greater cost because of the demands to keep track of and manage

the multiple different disclosure regimes. However, to the extent that certain other existing

requirements may involve monitoring cybersecurity incidents or assessing an incident’s impact

on the registrant, the registrant may be able to leverage existing disclosures to reduce the burden

of complying with the final rules. Additionally, as noted in Section II.A.3 those other

regulations generally serve different purposes than the final rules, and we believe that the

benefits of the final rules justify the costs.

One commenter raised a concern that the costs of the rules reached the threshold of an

“economically significant rulemaking” under the Unfunded Mandate Reform Act of 1995

(“UMRA”) and the Small Business Regulatory Enforcement Fairness Act, thus requiring an

“enhanced economic analysis.” 514 The requirement to issue an analysis under the UMRA does

not apply to rules issued by independent regulatory agencies. 515

513
See letter from SIFMA.
514
See letter from Chamber.
515
See 2 U.S.C. 658 (“The term ‘agency’ has the same meaning as defined in section 551(1) of title 5, United
States Code, but does not include independent regulatory agencies.”). See also Congressional Research Service,

141
 The compliance costs of the final rules could be disproportionately burdensome to

smaller registrants, as some of these costs may have a fixed component that does not scale with

the size of the registrant. 516 Also, smaller registrants may have fewer resources with which to

implement these changes. 517 One commenter suggested this could lead some small companies

seeking to conduct an initial public offering to reconsider. 518 Commenters also noted that smaller

companies may not yet have a mature reporting regime and organizational structure and would

benefit from an onramp to compliance. 519 We are not adopting some proposed requirements

(e.g., disclosing whether the board includes a cybersecurity expert), and thus the cost burden of

the final rules should not be as high as initially proposed. We also are delaying compliance for

incident disclosure for smaller reporting companies by providing an additional phase-in period of

180 days after the non-smaller reporting company compliance date for smaller reporting

companies, which will delay compliance with these requirements for 270 days from

effectiveness of the rules. 520 To the extent smaller reporting companies are less likely than larger

companies to have incident disclosure processes in place, they could benefit from additional time

to comply. An extended compliance date may also permit smaller reporting companies to

benefit from seeing how larger companies implement these disclosures. Investors in these

smaller registrants could benefit from higher disclosure quality afforded by the delay, although

Unfunded Mandates Reform Act: History, Impact, and Issues (July 17, 2020), available at
https://sgp.fas.org/crs/misc/R40957.pdf (noting “[UMRA] does not apply to duties stemming from participation
in voluntary federal programs [or] rules issued by independent regulatory agencies”).
516
See infra Section VI.
517
See, e.g., letter from SBA.
518
See letter from BIO.
519
See, e.g., letter from BIO.
520
See supra Section II.I.

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some benefits, such as the reduction in asymmetric information and mispricing, would also be

delayed.

3. Indirect Economic Effects

While the final rules only require disclosures—not changes to risk management

practices—the requirement to disclose and the disclosures themselves could result in certain

indirect benefits and costs. In anticipating investor reactions to the required disclosures, for

example, registrants might devote more resources to cybersecurity governance and risk

management in order to be able to disclose those efforts. Although not the purpose of this rule,

registrants devoting resources to cybersecurity governance and risk management could reduce

both their susceptibility to a cybersecurity attack, reducing the likelihood of future incidents, as

well as the degree of harm suffered from an incident, benefiting registrants and investors. The

choice to dedicate these resources would also represent an indirect cost of the final rules, to the

extent registrants do not already have governance and risk management measures in place. As

with compliance costs, the cost of improving cybersecurity governance and risk management

could be proportionally higher for smaller companies if these registrants have fewer resources to

implement these changes, and to the extent these costs do not scale with registrant size.

In addition, the requirement to tag the cybersecurity disclosure in Inline XBRL could

have indirect effects on registrants. As discussed in Section III.C.1.a.(ii), XBRL requirements

for public operating company financial statement disclosures have been observed to reduce

information processing cost. This reduction in information processing cost has been observed to

facilitate the monitoring of registrants by other market participants, and, as a result, to influence

registrants’ behavior, including their disclosure choices. 521

521
See supra note 485.

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 The requirement in Item 1.05 that registrants timely disclose material cybersecurity

incidents could also indirectly affect consumers, and external stakeholders such as other

registrants in the same industry and those facing similar cybersecurity threats. Cybersecurity

incidents can harm not only the company that suffers the incident but also other businesses and

consumers. For example, a cybersecurity breach at one company, such as a gas pipeline, or a

power company, may cause a major disruption or shutdown of a critical infrastructure industry,

resulting in broad losses throughout the economy. 522 Timely disclosure of cybersecurity

incidents required by Item 1.05 could increase awareness by those external stakeholders and

companies in the same industry that the malicious activities are occurring, giving them more

time to mitigate any potential damage.

To the extent that Item 1.05 increases incident disclosure, consumers may learn about a

particular cybersecurity breach and therefore take appropriate actions to limit potential economic

harm that they may incur from the breach. For example, there is evidence that increased

disclosure of cybersecurity incidents by companies can reduce the risk of identity theft for

individuals. 523 Also, consumers may be able to make better informed decisions about which

companies to entrust with their personal information.

522
See Lawrence A. Gordon, et al., Externalities and the Magnitude of Cyber Security Underinvestment by Private
Sector Firms: A Modification of the Gordon-Loeb Model, 6 J. INFO. SEC. 24, 25 (2015) (“Firms in the private
sector of many countries own a large share of critical infrastructure assets. Hence, cybersecurity breaches in
private sector firms could cause a major disruption of a critical infrastructure industry (e.g., delivery of
electricity), resulting in massive losses throughout the economy, putting the defense of the nation at risk.”). See
also Collin Eaton and Dustin Volz, U.S. Pipeline Cyberattack Forces Closure, WALL ST. J. (MAY 8, 2021),
available at https://www.wsj.com/articles/cyberattack-forces-closure-of-largest-u-s-refined-fuel-pipeline-
11620479737.
523
See Sasha Romanosky, Rahul Telang, and Alessandro Acquisti, Do Data Breach Disclosure Laws Reduce
Identity Theft?, 30 (2) J. OF POL’Y. ANALYSIS AND MGMT. 272, 256-286 (2011) (finding that the adoption of
State-level data breach disclosure laws reduced identity theft by 6.1%).

144
 As discussed above, to the extent that registrants may decide to enhance their

cybersecurity risk management in anticipation of the increased disclosure, that could reduce

registrants’ susceptibility to and damage incurred from a cybersecurity attack. This reduced

likelihood of and vulnerability to future incidents could reduce the negative externalities of those

incidents, leading to positive spillover effects and a reduction in overall costs to society from

these attacks.

However, the magnitude of this and the other indirect effects discussed above would

depend upon factors outside of the specific disclosures provided in response to the final rule, and

therefore it is difficult to assess with certainty the likelihood or extent of these effects.

D. Effects on Efficiency, Competition, and Capital Formation

We believe the final rules should have positive effects on market efficiency. As

discussed above, the final rules should improve the timeliness and informativeness of

cybersecurity incident and risk disclosure. As a result of the disclosure required by the final

rules, investors and other market participants should better understand the cybersecurity threats

registrants are facing, their potential impact, and registrants’ ability to respond to and manage

risks. Investors and other market participants should thereby better evaluate registrants’

securities and make more informed decisions. As a result, the required disclosures should reduce

information asymmetry and mispricing in the market, improving market efficiency. More

efficient prices should improve capital formation by increasing overall public trust in markets,

leading to greater investor participation and market liquidity.

The final rules also could promote competition among registrants with respect to

improvement in both their cybersecurity risk management and transparency in communicating

their cybersecurity processes. To the extent investors view strong cybersecurity risk

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management, strategy, and governance favorably, registrants disclosing more robust processes,

more clearly, could benefit from greater interest from investors, leading to higher market

liquidity relative to companies that do not. Customers may also be more likely to entrust their

business to companies that protect their data. Registrants that to date have invested less in

cybersecurity preparation could thus be incentivized to invest more, to the benefit of investors

and customers, in order to become more competitive. To the extent that increased compliance

costs resulting from the final rules prevent smaller companies from entering the market, as a

commenter suggested, 524 the final rules could reduce the ability of smaller companies to compete

and thereby reduce competition overall.

E. Reasonable Alternatives

1. Website Disclosure

As an alternative to Form 8-K disclosure of material cybersecurity incidents, we

considered providing registrants with the option of disclosing this information instead through

company websites, if the company disclosed its intention to do so in its most recent annual

report, and subject to information availability and retention requirements. While this approach

may be less costly for the company because it may involve fewer compliance costs, disclosures

made on company websites would not be located in a central depository, such as the EDGAR

system, 525 and would not be in the same place as other registrants’ disclosures of material

cybersecurity incidents, nor would they be organized into the standardized sections found in

Form 8-K and could thus be less uniform. Even if we required registrants to announce the

524
See letter from BIO.
525
EDGAR, the Electronic Data Gathering, Analysis, and Retrieval system, is the primary system for companies
and others submitting documents under the Securities Act, the Exchange Act, the Trust Indenture Act of 1939,
and the Investment Company Act. EDGAR’s public database can be used to research a public company’s
financial information and operations.

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disclosure, or to alert the Commission to it, the information would still be more difficult for

investors and market participants to locate and less uniform than Form 8-K.

The lack of a central repository, and a lack of uniformity of website disclosures, could

increase the costs for investors and other market participants to search for and process the

information to compare cybersecurity risks across registrants. Additionally, such disclosure

might not be preserved on the company’s website for as long as it would be on the EDGAR

system when the disclosure is filed with the Commission, because registrants may not keep

historical information available on their websites indefinitely and it could be difficult to

determine whether the website information had moved or changed. Therefore, this approach

would be less beneficial to investors, other market participants, and the overall efficiency of the

market.

2. Disclosure through Periodic Reports

We also considered requiring disclosure of material cybersecurity incidents through

quarterly or annual reports, as proposed, instead of Form 8-K. Reporting material cybersecurity

incidents at the end of the quarter or year would allow registrants more time to assess the

financial impact of such incidents. The resulting disclosure might be more specific or

informative for investors and other market participants to value the securities and make more

informed decisions. The compliance costs would be less under this alternative, because

registrants would not have to file as frequently. And, it might further reduce the risk that

disclosure could provide timely information to attackers.

However, this alternative also would lead to less timely reporting on material

cybersecurity incidents. As a result, the market would not be able to incorporate the information

related to cybersecurity risk into securities prices in as timely a manner, and investors and other

147
market participants would not be able to make as informed decisions as they could under the

requirements of Item 1.05. Additionally, as previously discussed, less timely reporting could

adversely impact external stakeholders, such as other registrants in the same industry and those

facing similar cybersecurity threats, and consumers whose data were compromised.

Relatedly, we proposed requiring registrants to disclose material changes and additions to

previously reported cybersecurity incidents on Forms 10-K and 10-Q instead of on an amended

Form 8-K. However, as discussed above, we believe using Form 8-K would be more timely and

consistent; 526 all disclosures concerning material cybersecurity incidents, whether new or

containing information not determined or unavailable initially, will be disclosed on the same

form.

3. Exempt Smaller Reporting Companies

We also considered exempting smaller reporting companies from the final rules. 527

Exempting smaller reporting companies from the disclosure requirements of the final rules

would avoid compliance costs for smaller companies, including those compliance costs that

could disproportionately affect smaller companies. 528 As noted earlier, however, we are not

adopting some proposed requirements (e.g., disclosing whether the board includes a

cybersecurity expert) and modifying others (e.g., requiring a description of cybersecurity

“processes” instead of more formal “policies and procedures”), and thus the cost burden of the

final rules should not be as high as initially proposed. This should mitigate some of the concerns

raised by commenters and would also reduce the potential value of an exemption. Moreover, an

exemption would remove the benefit to investors of informative, timely, uniform, and

526
See supra Section II.B.3.
527
See supra Section II.G.2.
528
See supra Section II.G.2

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comparable disclosure with regard to smaller companies. And although one commenter argued

for an exemption based on a perception that smaller companies are less likely to experience

cybersecurity incidents, 529 for the reasons explained in Section IV.C.1.b, we believe that smaller

companies are still at risk for material cybersecurity incidents. This aligns with comments we

received opposing an exemption for smaller reporting companies. 530

Lastly, one commenter that argued for an exemption cited the Proposing Release, which

noted a potential for increased cost of capital for registrants that do not have cybersecurity

programs once disclosures are mandated; the commenter stated that these would

disproportionately be smaller registrants. 531 We have reconsidered the argument that registrants

without robust cybersecurity processes in place might face a higher cost of capital and as a result

would be priced unfavorably, and no longer believe it to be accurate. It is indeed possible that

companies that reveal what investors consider to be less robust cybersecurity risk management,

strategy, and governance processes may experience a decline in stock price. However, because

the risk of cybersecurity attacks should be idiosyncratic, this decline would likely be due to

investors updating their expectations of future cash flows for this firm to incorporate higher

likelihood of a future incident—moderating the decline should future incidents occur—not an

increase in fundamental market risk and thus cost of capital. In addition, to the extent investors

already rationally anticipate that smaller registrants or registrants that have not previously

disclosed such information have less robust policies, there may be less or no stock price decline

as a result of Item 106, as these disclosures would merely confirm expectations. Thus, increases

529
See letter from BIO.
530
See, e.g., letters from Cybersecurity Coalition; Tenable.
531
See letter from BIO.

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in cost of capital should not be prevalent in this regard and should not be a reason to exempt

small firms from the final rules.

V. PAPERWORK REDUCTION ACT

A. Summary of the Collections of Information

Certain provisions of our rules and forms that will be affected by the final rules contain

“collection of information” requirements within the meaning of the Paperwork Reduction Act

(“PRA”). 532 The Commission published a notice requesting comment on changes to these

collections of information in the Proposing Release and submitted these requirements to the

Office of Management and Budget (“OMB”) for review in accordance with the PRA. 533

The hours and costs associated with preparing, filing, and sending the forms constitute

reporting and cost burdens imposed by each collection of information. An agency may not

conduct or sponsor, and a person is not required to comply with, a collection of information

unless it displays a currently valid OMB control number. Compliance with the information

collections is mandatory. Responses to the information collections are not kept confidential and

there is no mandatory retention period for the information disclosed. The titles for the affected

collections of information are: 534

• “Form 8-K” (OMB Control No. 3235-0060);

• “Form 6-K” (OMB Control No. 3235-0116);

• “Form 10-K” (OMB Control No. 3235-0063); and

• “Form 20-F” (OMB Control No. 3235-0288).

532
44 U.S.C. 3501 et seq.
533
44 U.S.C. 3507(d) and 5 CFR 1320.11.
534
The Proposing Release also listed “Schedule 14A” (OMB Control No. 3235-0059), “Schedule 14C” (OMB
Control No. 3235-0057), and “Form 10-Q” (OMB Control No. 3235-0070) as affected collections of
information. However, under the final rules, these schedules and form are no longer affected.

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The Commission adopted all of the existing regulations and forms pursuant to the Securities Act

and the Exchange Act. The regulations and forms set forth disclosure requirements for current

reports and periodic reports filed by registrants to help shareholders make informed voting and

investment decisions.

A description of the final amendments, including the need for the information and its use,

as well as a description of the likely respondents, can be found in Section II above, and a

discussion of the economic effects of the final amendments can be found in Section IV above.

B. Summary of Comment Letters and Revisions to PRA Estimates

In the Proposing Release, the Commission requested comment on the PRA burden hour

and cost estimates and the analysis used to derive the estimates. 535 While a number of parties

commented on the potential costs of the proposed rules, only one commenter spoke specifically

to the PRA analysis, arguing that the proposal “cannot be justified under the Paperwork

Reduction Act” because of an “unreasonable” number of separate disclosures and because “the

amount of information the Proposal would require to be produced is unwarranted in light of

other, existing regulations.” 536 The commenter further alleged that the Proposing Release’s

“calculation of costs and benefits is skewed” because “[d]ifferent but overlapping disclosure and

reporting requirements do not correlate with lower burdens on information providers, but rather,

escalated burdens and costs.”

While we acknowledge the commenter’s concerns about costs of the proposal, for the

reasons discussed in Section II.H and elsewhere throughout this release, we believe the

information required by the final rules is necessary and appropriate in the public interest and for

535
Proposing Release at 16616-16617.
536
See letter from SIFMA.

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the protection of investors. Further, a discussion of the economic effects of the final

amendments, including consideration of comments that expressed concern about the expected

costs associated with the proposed rules, can be found in Section IV above. With regard to the

calculation of paperwork burdens, we note that both the Proposing Release’s PRA analysis and

our PRA analysis of the final amendments here estimate the incremental burden of each new or

revised disclosure requirement individually and fully comport with the requirements of the PRA.

Our estimates reflect the modifications to the proposed rules that we are adopting in response to

commenter concerns, including streamlining some of the proposed rule’s elements to address

concerns regarding the level of detail required and the anticipated costs of compliance.

C. Effects of the Amendments on the Collections of Information

The following PRA Table 1 summarizes the estimated effects of the final amendments on

the paperwork burdens associated with the affected collections of information listed in Section

V.A.

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 PRA Table 1 – Estimated Paperwork Burden of Final Amendments

Final Amendments and Effects Affected Estimated Burden Increase Number of Estimated
Forms Affected Responses*
Form 8-K
• Add Item 1.05 requiring disclosure of Form 8-K 9 hour increase in compliance 200 Filings
material cybersecurity incidents within burden per form
four business days following
determination of materiality.

Form 6-K
• Add “cybersecurity incident” to the list Form 6-K 9 hour increase in compliance 20 Filings
in General Instruction B of information burden per form
required to be furnished on Form 6-K.

Regulation S-K Item 106

• Add Item 106(b) requiring disclosure Form 10-K and Form 10-K: 10 hour increase in 8,292 Filings
regarding cybersecurity risk compliance burden per form
management and strategy.
• Add Item 106(c) requiring disclosure Form 20-F Form 20-F: 10 hour increase in 729 Filings
regarding cybersecurity governance. compliance burden per form
* The OMB PRA filing inventories represent a three-year average. Averages may not align with the actual number
of filings in any given year.

The estimated burden increases for Forms 8-K, 10-K, and 20-F reflect changes from the

estimates provided in the Proposing Release. There, the Commission estimated that the average

incremental burden for an issuer to prepare the Form 8-K Item 1.05 disclosure would be 10

hours. The proposed estimate included the time and cost of preparing the disclosure, as well as

tagging the data in XBRL. The changes we are making to Item 1.05 in the final rules should

generally reduce the associated burden by an incremental amount in most cases. We therefore

estimate that Form 8-K Item 1.05 will have a burden of 9 hours, on par with the average burdens

of existing Form 8-K items, which is 9.21 hours.

In the Proposing Release, the Commission estimated that the average incremental burden

for preparing Form 10-K stemming from proposed Item 106 would be 15 hours. Similarly, the

Commission estimated that proposed Item 106 would result in an average incremental burden for

preparing Form 20-F of 16.5 hours. The proposed estimates included the time and cost of

preparing the disclosure, as well as tagging the data in XBRL. We estimate the changes we are

153
making to Item 106 in the final rules should generally reduce the associated burden by one-third

due to the elimination of many of the proposed disclosure items; accordingly, we have reduced

the estimated burden to 10 hours from 15 hours for Form 10-K, and to 10 hours from 16.5 hours

for Form 20-F. 537

We have not modified the estimated number of estimated affected responses for Form 8-

K and Form 6-K from what was proposed. As noted in the Proposing Release, not every filing of

these forms would include responsive disclosures. Rather, these disclosures would be required

only when a registrant has made the determination that it has experienced a material

cybersecurity incident. Further, in the case of Form 6-K, the registrant would only have to

provide the disclosure if it is required to disclose such information elsewhere.

D. Incremental and Aggregate Burden and Cost Estimates for the Final

Amendments

Below we estimate the incremental and aggregate increase in paperwork burden as a

result of the final amendments. These estimates represent the average burden for all respondents,

both large and small. In deriving our estimates, we recognize that the burdens will likely vary

among individual respondents and from year to year based on a number of factors, including the

nature of their business.

The burden estimates were calculated by multiplying the estimated number of responses

by the estimated average amount of time it would take a registrant to prepare and review

disclosure required under the final amendments. For purposes of the PRA, the burden is to be

537
Note that, in the proposal, a portion of the burden for companies reporting on Form 10-K was allocated to
Schedule 14A, as a result of certain disclosure items being proposed to be included in Rule 407 of Regulation S-
K. By contrast, since registrants reporting on Form 20-F do not have an analogous form to Schedule 14A, the
comparable burden to Schedule 14A was attributable to Form 20-F. Since we are not adopting Item 407 as
proposed, and we do not expect any disclosures on Schedule 14A, the estimates for Form 10-K and Form 20-F
are now aligned.

154
allocated between internal burden hours and outside professional costs. PRA Table 2 below sets

forth the percentage estimates we typically use for the burden allocation for each collection of

information. We also estimate that the average cost of retaining outside professionals is $600 per

hour. 538

PRA Table 2: Standard Estimated Burden Allocation for

Specified Collections of Information

Collection of Information Internal Outside Professionals

Form 10-K, Form 6-K, 75% 25%

and Form 8-K

Form 20-F 25% 75%

PRA Table 3 below illustrates the incremental change to the total annual compliance

burden of affected collections of information, in hours and in costs, as a result of the final

amendments.

538
We recognize that the costs of retaining outside professionals may vary depending on the nature of the
professional services, but for purposes of this PRA analysis, we estimate that such costs would be an average of
$600 per hour. At the proposing stage, we used an estimated cost of $400 per hour. We are increasing this cost
estimate to $600 per hour to adjust the estimate for inflation from Aug. 2006.

155
 PRA Table 3. Calculation of the Incremental Change in Burden Estimates of Current
Responses Resulting from the Final Amendments

Collection of Number of Burden Hour Change in Change in Change in Change in

Information Estimated Increase per Burden Hours Company Professional Professional
Affected Response Hours Hours Costs
Responses

(A)* (B) (C) (D) (E) (F)

= (A) x (B)** = (C) x 0.75 = (C) x 0.25 or = (E) x $600
or .25 .75
8-K 200 9 1,800 1,350 450 $270,000

6-K 20 9 180 135 45 $27,000

10-K 8,292 10 82,920 62,190 20,730 $12,438,000

20-F 729 10 7,290 1,822.50 5,467.50 $3,280,500

* The number of estimated affected responses is based on the number of responses in the Commission’s current
OMB PRA filing inventory. The OMB PRA filing inventory represents a three-year average.
** The estimated changes in Columns (C), (D), and (E) are rounded to the nearest whole number.

The following PRA Table 4 summarizes the requested paperwork burden, including the

estimated total reporting burdens and costs, under the final amendments.

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 PRA Table 4. Requested Paperwork Burden Under the Final Amendments

Current Burden Program Change Revised Burden

Form Current Current Current Cost Change in Change in Change in Annual Burden Cost Burden
Annual Burden Burden Number Company Professional Responses Hours (I) =
Responses Hours (C) of Hours Costs (G) = (H) = (C) + (F)
(A) (B) Affected (E)† (F)‡ (A)+(D) (B) + (E)
Responses
(D)

Form 8-K 118,387 818,158 $108,674,430 200 1,350 $270,000 118,587 819,508 $108,944,430

Form 6-K 34,794 227,031 $30,270,780 20 135 $27,000 34,814 227,166 $30,297,780

Form 10- 8,292 13,988,770 $1,835,588,919 -- 62,190 $12,438,000 8,292 14,050,960 $1,848,026,919
K
Form 20- 729 478,983 $576,490,625 -- 1,822.50 $3,280,500 729 480,805.50 $579,771,125
F
† From Column (D) in PRA Table 3
‡ From Column (F) in PRA Table 3

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VI. FINAL REGULATORY FLEXIBILITY ANALYSIS

The Regulatory Flexibility Act (“RFA”) requires the Commission, in promulgating rules

under Section 553 of the Administrative Procedure Act, 539 to consider the impact of those rules

on small entities. We have prepared this Final Regulatory Flexibility Analysis (“FRFA”) in

accordance with Section 604 of the RFA. 540 An Initial Regulatory Flexibility Analysis (“IRFA”)

was prepared in accordance with the RFA and was included in the Proposing Release. 541

A. Need for, and Objectives of, the Final Amendments

The purpose of the final amendments is to ensure investors and other market participants

receive timely, decision-useful information about registrants’ material cybersecurity incidents,

and periodic information on registrants’ approaches to cybersecurity risk management, strategy,

and governance that is standardized and comparable across registrants. The need for, and

objectives of, the final rules are described in Sections I and II above. We discuss the economic

impact and potential alternatives to the amendments in Section IV, and the estimated compliance

costs and burdens of the amendments under the PRA in Section V.

B. Significant Issues Raised by Public Comments

In the Proposing Release, the Commission requested comment on any aspect of the

IRFA, and particularly on the number of small entities that would be affected by the proposed

amendments, the existence or nature of the potential impact of the proposed amendments on

small entities discussed in the analysis, how the proposed amendments could further lower the

burden on small entities, and how to quantify the impact of the proposed amendments.

539
5 U.S.C. 553.
540
5 U.S.C. 604.
541
Proposing Release at 16617.

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 We received one comment letter on the IRFA, from the U.S. Small Business

Administration’s Office of Advocacy (“Advocacy”). 542 Advocacy’s letter expressed concern that

“the IRFA does not adequately describe the regulated small entities and potential impacts on

those entities.” 543 In the Proposing Release, the Commission estimated that the proposed

amendments would apply to 660 issuers and 9 business development companies that may be

considered small entities. 544 Advocacy’s comment letter stated that this estimate did “not provide

additional information, such as the North American Industry Classification System (“NAICS”)

classifications of the affected entities” and did not “break down the affected entities into smaller

size groups (e.g., based on total assets).” 545 It also stated that the IRFA did not “adequately

analyze the relative impact of costs to small entities.” 546 In this vein, it suggested that emerging

growth companies (“EGCs”) may face particular challenges complying with the proposed

rules. 547 In particular, Advocacy’s comment letter stated that “[e]merging growth companies

may have little or no revenue to afford the additional cost burden of the proposed rules and may

not have access to the cybersecurity expertise necessary to comply with the new disclosure

requirements.” 548

542
See letter from U.S. Small Business Administration Office of Advocacy. We also received some comments
that, while not specifically addressed to the IRFA, did concern the impact of the proposed rules on smaller
reporting companies. See letters from BDO; BIO; CSA; Cybersecurity Coalition; NACD; NASAA; Nasdaq;
NDIA; Prof. Perullo; Tenable. We have addressed those comments in Section II.G.2, supra, and incorporate
those responses here as applicable to our RFA analysis. We also note the recommendations for all Commission
rulemakings from the Office of the Advocate for Small Business Capital Formation. See 2022 OASB Annual
Report.
543
Id.
544
Proposing Release at 16617.
545
See letter from Advocacy.
546
Id.
547
Id.
548
Id.

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 The comment letter from Advocacy also addressed the discussion of alternatives within

the IRFA and the Commission’s explanation of why it did not ultimately propose such

alternatives. Advocacy stated that “[t]he RFA requires that an IRFA provide significant, feasible

alternatives that accomplish an agency’s objectives,” and stated that the IRFA did not satisfy this

requirement because it listed “broad categories of potential alternatives to the proposed rules but

[did] not analyze any specific alternative that was considered by the SEC,” and because it did not

“contain a description of significant alternatives which accomplish the stated SEC objectives and

which minimize the significant economic impact of the proposal on small entities.”

1. Estimate of Affected Small Entities and Impact to Those Entities

With respect to the adequacy of the Proposing Release’s estimate of affected small

entities, the RFA requires “a description of and, where feasible, an estimate of the number of

small entities to which the proposed rule will apply.” 549 Advocacy’s published guidance

recommends agencies use NAICS classifications to help in “identifying the industry,

governmental and nonprofit sectors they intend to regulate.” 550 Here, given that the rulemaking

applies to and impacts all public company registrants, regardless of industry or sector, we do not

believe that further breakout of such registrants by industry classification is necessary or would

otherwise be helpful to such entities understanding the impact of the proposed or final rules.

This is not a case in which small entities in certain industries and sectors would be affected more

than others, as cybersecurity risks exist across industries. 551 For the same reasons we are not

549
5 U.S.C. 603(b)(3).
550
U.S. Small Business Administration Office of Advocacy, A Guide for Government Agencies: How to Comply
with the Regulatory Flexibility Act (Aug. 2017), at 18, available at
https://www.sba.gov/sites/default/files/advocacy/How-to-Comply-with-the-RFA-WEB.pdf.
551
A breakout would be relevant where, for example, the Commission finds that small entities generally would not
be affected by a rule but small entities in a particular industry would be affected.

160
breaking down the affected entities into smaller size groups (e.g., based on total assets) as

recommended by Advocacy. Given the nature of the final rules, we believe that our estimate of

the number of small entities to which the final rules will apply adequately describes and

estimates the small entities that will be affected. 552

With respect to Advocacy’s suggestion that the proposed rule may be “particularly

problematic” for EGCs, we have discussed in Section IV.C.2 above the anticipated costs of the

final rules, including their impact on EGCs. We also note that the category of EGC is not the

same as the category of “small entity” for purposes of the RFA, and indeed EGC status is not a

reliable indicator of whether a registrant is a small entity. 553 While EGC status does include a

revenue component, it importantly considers whether the issuer is seasoned, meaning, whether it

is a new registrant (rather than a registrant with a longer public reporting history). Accordingly,

while many EGCs are small entities, there are many that are not. Likewise, many small entities

are not EGCs. For purposes of the FRFA, our focus is on the impact on small entities, regardless

of whether or not they are EGCs.

We disagree with the statement in the Advocacy comment letter that “SEC expects that

the costs associated with the proposed amendments to be similar for large and small entities.”

The Commission explained in the IRFA that the proposed amendments would apply to small

entities to the same extent as other entities, irrespective of size, and that therefore, the

Commission expected that “the nature of any benefits and costs associated with the proposed

552
See infra Section VI.C.
553
An EGC is defined as a company that has total annual gross revenues of less than $1.235 billion during its most
recently completed fiscal year and, as of Dec. 8, 2011, had not sold common equity securities under a
registration statement. A company continues to be an EGC for the first five fiscal years after it completes an
initial public offering, unless one of the following occurs: its total annual gross revenues are $1.235 billion or
more; it has issued more than $1 billion in non-convertible debt in the past three years; or it becomes a “large
accelerated filer,” as defined in Exchange Act Rule 12b-2.

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amendments to be similar for large and small entities” (emphasis added). 554 The analysis with

respect to the nature of the costs (and benefits) of the proposed rules detailed in the Economic

Analysis of the Proposing Release was referenced in the IRFA to help small entities understand

such impacts, not to imply that small entities face the same degree of costs as large entities.

Indeed, the Commission went on to state in both the IRFA and the Economic Analysis of the

Proposing Release that, while it was unable to project the economic impacts on small entities

with precision, it recognized that “the costs of the proposed amendments borne by the affected

entities could have a proportionally greater effect on small entities, as they may be less able to

bear such costs relative to larger entities.” 555 Additionally, in Section IV, above, we discuss the

economic effects, including costs, of the final amendments across all entities. We recognize that

to the extent the costs are generally uniform across all entities, they would have a relatively

greater burden on smaller entities. That said, as discussed both above and below, to help

mitigate that relatively greater burden and to respond to comment letters including the letter from

Advocacy, we have extended the compliance date for smaller reporting companies so as to

provide additional transition time and allow them to benefit from the experience of larger

companies. Accordingly, we believe that both this FRFA and our prior IRFA adequately

describe and analyze the relative impact of costs to small entities.

2. Consideration of Alternatives

The IRFA’s discussion of significant alternatives, and our discussion of alternatives

below, satisfy the RFA. The relevant RFA requirement provides that an IRFA “shall also

contain a description of any significant alternatives to the proposed rule which accomplish the

554
Proposing Release at 16617 (emphasis added).
555
Proposing Release at 16617-16618. See also id. at 16613 (“smaller companies might incur a cost that is
disproportionally high, compared to larger companies under the proposed rules”).

162
stated objectives of applicable statutes and which minimize any significant economic impact of

the proposed rule on small entities.” 556 In the Proposing Release, the Commission discussed each

of the types of significant alternatives noted in Section 603 of the RFA and concluded that none

of these alternatives would accomplish the stated objectives of the rulemaking while minimizing

any significant impact on small entities. In addition, Section III.E of the Proposing Release

discussed reasonable alternatives to the proposed rules and their economic impacts. Similarly, in

addition to the discussion in Section VI.E below, in Section IV.E of this release we also discuss

reasonable alternatives of the final rules and their economic impacts.

While not commenting on the alternatives raised in the IRFA specifically, two

commenters stated that the final rules should exempt smaller businesses. One of these

commenters stated that small companies in the biotechnology industry “do not have the capacity,

nor the business need, to have institutional structures related to the management, planning,

oversight, and maintenance of cybersecurity related systems and suppliers. These companies

should not have to hire extra employees specifically for the purposes of implementing

cybersecurity related programs.” 557 The other commenter noted that, with respect to the

proposed requirement to require disclosure about the cybersecurity expertise of board members,

small companies “have limited resources to begin with, and may find it more difficult than large

companies to identify board members with requisite cyber expertise given that there already is a

lack of talent in this area.” 558

With respect to the first of these commenters, we note that neither the proposed nor the

final rules require any company to “implement new management structures” or otherwise adopt

556
5 U.S.C. 603(c).
557
See letter from BIO.
558
See letter from NDIA.

163
or change “institutional structures related to the management, planning, oversight, and

maintenance of cybersecurity related systems and suppliers.” 559 The final rules instead call for

disclosure of a registrant’s processes, if any, for assessing, identifying, and managing material

cybersecurity risks. To the extent that a registrant does not have such processes, the final rules

do not impose any additional costs. With respect to the second of these commenters, we note

that, consistent with commenter feedback and for the reasons discussed above, we have not

adopted the proposed requirement related to disclosure of board cybersecurity expertise.

Finally, we note that many commenters explicitly opposed exempting smaller businesses

from the proposed rules, 560 in part because they may face equal 561 or greater 562 cybersecurity risk

than larger companies, or because investors’ relative share in a smaller company may be higher,

such that small companies’ cybersecurity risk “may actually embody the most pressing

cybersecurity risk to an investor.” 563 We agree with these analyses, 564 and accordingly are not

exempting small entities from the final rules. However, as discussed above, in response to

concerns about the impact of the rules on smaller companies and in order to provide smaller

559
The quoted language is from the BIO letter.
560
See letters from CSA; Cybersecurity Coalition; NASAA; Prof. Perullo; Tenable.
561
See letter from Cybersecurity Coalition.
562
See letters from NASAA and Tenable.
563
See letter from Prof. Perullo.
564
We note that one commenter stated its conclusion that “cyberattacks mainly affect larger companies.” See letter
from BIO. The basis of the commenter’s assertion is that mean market capitalization of impacted companies in
the relevant study cited in the Proposing Release is $58.9 billion (Kamiya, et al. (2021)), which it notes is much
higher than the average for small companies, and thus concludes that “cyberattacks mainly affect large
companies and are not material for smaller companies.” As noted in Section IV, supra, an average market
capitalization of $58.9 billion does not preclude the existence of numerous companies much smaller (and larger)
than that amount. See supra note 478. The commenter additionally notes that the relevant study states that
“firms are more likely to experience cyberattacks when they are larger.” To the extent that smaller entities face
fewer cyber incidents, that would result in a less frequent need to analyze whether disclosure of such incidents
is required under the final rules. However, even if smaller entities are less likely to experience a cyberattack,
this would not negate the analysis that such attacks, when they do occur, are more likely to be material for the
reasons discussed above.

164
reporting companies with additional time to prepare to comply with the incident disclosure

requirements, we are providing such registrants with an additional 180 days from the non-smaller

reporting company compliance date before they must comply with the new Form 8-K

requirement.

C. Small Entities Subject to the Final Amendments

The final amendments would apply to registrants that are small entities. The RFA

defines “small entity” to mean “small business,” “small organization,” or “small governmental

jurisdiction.” 565 For purposes of the RFA, under our rules, a registrant, other than an investment

company, is a “small business” or “small organization” if it had total assets of $5 million or less

on the last day of its most recent fiscal year and is engaged or proposing to engage in an offering

of securities that does not exceed $5 million. 566 An investment company, including a business

development company, 567 is considered to be a “small business” if it, together with other

investment companies in the same group of related investment companies, has net assets of $50

million or less as of the end of its most recent fiscal year. 568 We estimate that, as of December

31, 2022, there were approximately 800 issuers and 10 business development companies that

may be considered small entities that would be subject to the final amendments.

D. Projected Reporting, Recordkeeping, and other Compliance Requirements

Per the final rules, registrants will be required to report material cybersecurity incidents

on Form 8-K and Form 6-K for FPIs, and will be required to describe in their annual reports on

Forms 10-K and 20-F certain aspects of their cybersecurity risk management, strategy, and

565
5 U.S.C. 601(6).
566
See 17 CFR 240.0-10(a) [Exchange Act Rule 0-10a)].
567
Business development companies are a category of closed-end investment company that are not registered
under the Investment Company Act [15 U.S.C. 80a-2(a)(48) and 80a-53 through 64].
568
17 CFR 270.0-10(a).

165
governance, if any. The final amendments are described in more detail in Section II above.

These requirements generally will apply to small entities to the same extent as other entities,

irrespective of size or industry classification, although we are adopting a later compliance date

for smaller reporting companies in response to concerns raised by commenters. We continue to

expect that the nature of any benefits and costs associated with the amendments to be similar for

large and small entities, and so we refer to the discussion of the amendments’ economic effects

on all affected parties, including small entities, in Section IV above. Also consistent with the

discussion in Sections II and IV above, we acknowledge that, in particular to the extent that a

smaller entity would be required to provide disclosure under the final rules, it may face costs that

are proportionally greater as they may be less able to bear such costs relative to larger entities.

However, as discussed in in Section IV, we anticipate that the economic benefits and costs likely

could vary widely among small entities based on a number of factors, such as the nature and

conduct of their businesses, including whether the company actively manages material

cybersecurity risks, which makes it difficult to project the economic impact on small entities

with precision. To the extent that the disclosure requirements have a greater effect on small

registrants relative to large registrants, they could result in adverse effects on competition. The

fixed component of the legal costs of preparing the disclosure would be a primary contributing

factor. Compliance with certain provisions of the final amendments may require the use of

professional skills, including legal, accounting, and technical skills.

E. Agency Action to Minimize Effect on Small Entities

The RFA directs us to consider alternatives that would accomplish our stated objectives,

while minimizing any significant adverse impact on small entities. Accordingly, we considered

the following alternatives:

166
 • Exempting small entities from all or part of the requirements;

• Establishing different compliance or reporting requirements that take into account the

resources available to small entities;

• Using performance rather than design standards; and

• Clarifying, consolidating, or simplifying compliance and reporting requirements under

the rules for small entities.

The rules are intended to better inform investors about cybersecurity incidents and, if

any, the cybersecurity risk management, strategy, and governance of registrants of all types and

sizes that are subject to the Exchange Act reporting requirements. We explain above in Sections

II and IV that current requirements and guidance are not yielding uniform, comparable disclosure

sufficient to meet investors’ needs. The disclosure that does exist is scattered in various parts of

registrants’ filings, making it difficult for investors to locate, analyze, and compare across

registrants. Staff has also observed that smaller reporting companies generally provide less

cybersecurity disclosure as compared to larger registrants, and commenters agreed that there is a

need for cybersecurity disclosure from small companies. 569

Given the current disclosure landscape, exempting small entities or otherwise clarifying,

consolidating, or simplifying compliance and reporting requirements under the rules for small

entities would frustrate the rulemaking’s goal of providing investors with more uniform and

timely disclosure about material cybersecurity incidents and about cybersecurity risk

management, strategy, and governance practices across all registrants. That said, as discussed in

Section II above, we have consolidated and simplified the disclosure requirements for all entities,

which should ease small entities’ compliance as well. Further, as noted above, smaller

569
See supra notes 339 to 342 and accompanying text.

167
companies may face equal or greater cybersecurity risk than larger companies, making the

disclosures important for investors in these companies.

On the other hand, we believe the rulemaking’s goals can be achieved by providing

smaller reporting companies with additional time to come into compliance. Therefore, we are

delaying smaller reporting companies’ required compliance date with the Form 8-K incident

disclosure requirement by an additional 180 days from the non-smaller reporting company

compliance date. This delay will benefit smaller reporting companies both by giving them extra

time to establish disclosure controls and procedures and by allowing them to observe and learn

from best practices as they develop among larger registrants.

Similarly, the final rules incorporate a combination of performance and design standards

with respect to all subject entities, including small entities, in order to balance the objectives and

compliance burdens of the rules. While the final rules do use design standards to promote

uniform compliance requirements for all registrants and to address the concerns underlying the

amendments, which apply to entities of all size, they also incorporate elements of performance

standards to give registrants sufficient flexibility to craft meaningful disclosure that is tailored to

their particular facts and circumstances. For example, the final rules require a registrant to

describe its “processes, if any, for assessing, identifying, and managing material risks from

cybersecurity threats in sufficient detail for a reasonable investor to understand those processes.”

The rule also provides a non-exclusive list of disclosure items that a registrant should include in

providing responsive disclosure to this performance standard; this design element provides

registrants with additional guidance with respect to the type of disclosure topics that could be

covered and promotes consistency.

168
Statutory Authority

The amendments contained in this release are being adopted under the authority set forth

in Sections 7 and 19(a) of the Securities Act and Sections 3(b), 12, 13, 15, and 23(a) of the

Exchange Act.

List of Subjects in 17 CFR Parts 229, 232, 239, 240, and 249

Reporting and record keeping requirements, Securities.

Text of Amendments

For the reasons set forth in the preamble, the Commission amends title 17, chapter II of the

Code of Federal Regulations as follows:

PART 229—STANDARD INSTRUCTIONS FOR FILING FORMS UNDER

SECURITIES ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY

POLICY AND CONSERVATION ACT OF 1975—REGULATION S-K

1. The authority citation for part 229 continues to read as follows:

Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2, 77z-3, 77aa(25), 77aa(26),

77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 77sss, 78c, 78i, 78j, 78j-3, 78l, 78m, 78n, 78n-1,

78o, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-9, 80a-20, 80a-29, 80a-30, 80a-31(c), 80a-37, 80a-

38(a), 80a-39, 80b-11 and 7201 et seq.; 18 U.S.C. 1350; sec. 953(b), Pub. L. 111-203, 124 Stat.

1904 (2010); and sec. 102(c), Pub. L. 112-106, 126 Stat. 310 (2012).

2. Add § 229.106 to read as follows:

§ 229.106 (Item 106) Cybersecurity.

(a) Definitions. For purposes of this section:

Cybersecurity incident means an unauthorized occurrence, or a series of related

unauthorized occurrences, on or conducted through a registrant’s information systems that

169
jeopardizes the confidentiality, integrity, or availability of a registrant’s information systems or

any information residing therein.

Cybersecurity threat means any potential unauthorized occurrence on or conducted

through a registrant’s information systems that may result in adverse effects on the

confidentiality, integrity, or availability of a registrant’s information systems or any information

residing therein.

Information systems means electronic information resources, owned or used by the

registrant, including physical or virtual infrastructure controlled by such information resources,

or components thereof, organized for the collection, processing, maintenance, use, sharing,

dissemination, or disposition of the registrant’s information to maintain or support the

registrant’s operations.

(b) Risk management and strategy. (1) Describe the registrant’s processes, if any, for

assessing, identifying, and managing material risks from cybersecurity threats in sufficient detail

for a reasonable investor to understand those processes. In providing such disclosure, a

registrant should address, as applicable, the following non-exclusive list of disclosure items:

(i) Whether and how any such processes have been integrated into the registrant’s overall

risk management system or processes;

(ii) Whether the registrant engages assessors, consultants, auditors, or other third parties

in connection with any such processes; and

(iii) Whether the registrant has processes to oversee and identify such risks from

cybersecurity threats associated with its use of any third-party service provider.

(2) Describe whether any risks from cybersecurity threats, including as a result of any

previous cybersecurity incidents, have materially affected or are reasonably likely to materially

170
affect the registrant, including its business strategy, results of operations, or financial condition

and if so, how.

(c) Governance. (1) Describe the board of directors’ oversight of risks from

cybersecurity threats. If applicable, identify any board committee or subcommittee responsible

for the oversight of risks from cybersecurity threats and describe the processes by which the

board or such committee is informed about such risks.

(2) Describe management’s role in assessing and managing the registrant’s material risks

from cybersecurity threats. In providing such disclosure, a registrant should address, as

applicable, the following non-exclusive list of disclosure items:

(i) Whether and which management positions or committees are responsible for assessing

and managing such risks, and the relevant expertise of such persons or members in such detail as

necessary to fully describe the nature of the expertise;

(ii) The processes by which such persons or committees are informed about and monitor

the prevention, detection, mitigation, and remediation of cybersecurity incidents; and

(iii) Whether such persons or committees report information about such risks to the board

of directors or a committee or subcommittee of the board of directors.

Instruction 1 to Item 106(c): In the case of a foreign private issuer with a two-tier board

of directors, for purposes of paragraph (c) of this section, the term “board of directors” means the

supervisory or non-management board. In the case of a foreign private issuer meeting the

requirements of §240.10A-3(c)(3) of this chapter, for purposes of paragraph (c) of this Item, the

term “board of directors” means the issuer’s board of auditors (or similar body) or statutory

auditors, as applicable.

171
 Instruction 2 to Item 106(c): Relevant expertise of management in Item 106(c)(2)(i) may

include, for example: Prior work experience in cybersecurity; any relevant degrees or

certifications; any knowledge, skills, or other background in cybersecurity.

(d) Structured Data Requirement. Provide the information required by this Item in an

Interactive Data File in accordance with Rule 405 of Regulation S-T and the EDGAR Filer

Manual.

3. Amend § 229.601 by revising paragraph (b)(101)(i)(C)(1) as follows:

§ 229.601 (Item 601) Exhibits

* * * * *

(b) * * *

(101) * * *

(i) * * *

(C) * * *

(1) Only when:

(i) The Form 8-K contains audited annual financial statements that are a revised version

of financial statements that previously were filed with the Commission and that have been

revised pursuant to applicable accounting standards to reflect the effects of certain subsequent

events, including a discontinued operation, a change in reportable segments or a change in

accounting principle. In such case, the Interactive Data File will be required only as to such

revised financial statements regardless of whether the Form 8-K contains other financial

statements; or

(ii) The Form 8-K includes disclosure required to be provided in an Interactive Data File

pursuant to Item 1.05(b) of Form 8-K; and

172
* * * * *

PART 232—REGULATION S-T—GENERAL RULES AND REGULATIONS FOR

ELECTRONIC FILINGS

4. The general authority citation for part 232 continues to read as follows:

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s(a), 77z-3, 77sss(a), 78c(b), 78l, 78m,

78n, 78o(d), 78w(a), 78ll, 80a-6(c), 80a-8, 80a-29, 80a-30, 80a-37, 80b-4, 80b-6a, 80b-10, 80b-

11, 7201 et seq.; and 18 U.S.C. 1350, unless otherwise noted.

* * * * *

5. Amend § 232.405 by adding paragraph (b)(4)(v) to read as follows:

§ 232.405 Interactive Data File submissions.

* * * * *

(b) * * *

(4) * * *

(v) Any disclosure provided in response to: §229.106 of this chapter (Item 106 of

Regulation S-K); Item 1.05 of §249.308 of this chapter (Item 1.05 of Form 8-K); and Item 16K

of § 249.220f of this chapter (Item 16K of Form 20-F).

* * * * *

PART 239—FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

6. The general authority citation for part 239 continues to read as follows:

Authority: 15 U.S.C. 77c, 77f, 77g, 77h, 77j, 77s, 77z–2, 77z–3, 77sss, 78c, 78l, 78m,

78n, 78o(d), 78o–7 note, 78u–5, 78w(a), 78ll, 78mm, 80a–2(a), 80a–3, 80a–8, 80a–9, 80a–10,

80a–13, 80a–24, 80a–26, 80a–29, 80a–30, 80a–37, and sec. 71003 and sec. 84001, Pub. L. 114–

94, 129 Stat. 1321, unless otherwise noted.

173
* * * * *

7. Amend § 239.13 by revising paragraph (a)(3)(ii) to read as follows:

§ 239.13 Form S-3, for registration under the Securities Act of 1933 of securities of certain

issuers offered pursuant to certain types of transactions.

* * * * *

(a) * * *

(3) * * *

(ii) Has filed in a timely manner all reports required to be filed during the twelve calendar

months and any portion of a month immediately preceding the filing of the registration

statement, other than a report that is required solely pursuant to Item 1.01, 1.02, 1.05, 2.03, 2.04,

2.05, 2.06, 4.02(a), 6.01, 6.03, or 6.05 of Form 8-K (§ 249.308 of this chapter). If the registrant

has used (during the twelve calendar months and any portion of a month immediately preceding

the filing of the registration statement) § 240.12b-25(b) of this chapter with respect to a report or

a portion of a report, that report or portion thereof has actually been filed within the time period

prescribed by that section; and

* * * * *

8. Amend Form S-3 (referenced in § 239.13) by adding General Instruction I.A.3(b).

Note: Form S-3 is attached as Appendix A to this document. Form S-3 will not appear in the

Code of Federal Regulations.

PART 240—GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE

ACT OF 1934

9. The authority citation for part 240 continues to read, in part, as follows:

174
 Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, 77sss,

77ttt, 78c, 78c–3, 78c–5,78d, 78e, 78f, 78g, 78i, 78j, 78j–1, 78j–4, 78k, 78k–1, 78l, 78m, 78n,

78n–1, 78o, 78o–4, 78o–10, 78p, 78q, 78q–1, 78s, 78u–5, 78w, 78x, 78dd, 78ll, 78mm, 80a–20,

80a–23, 80a–29, 80a–37, 80b–3, 80b–4, 80b–11, 7201 et seq., and 8302; 7 U.S.C. 2(c)(2)(E); 12

U.S.C.5221(e)(3); 18 U.S.C. 1350; and Pub. L. 111–203, 939A, 124 Stat.1376 (2010); and Pub.

L. 112–106, sec. 503 and 602, 126 Stat. 326 (2012), unless otherwise noted.

* * * * *

Section 240.15d–11 is also issued under secs. 3(a) and 306(a), Pub. L. 107–204, 116 Stat.

745.

* * * * *

10. Amend § 240.13a-11 by revising paragraph (c) to read as follows:

§ 240.13a-11 Current reports on Form 8-K (§249.308 of this chapter).

* * * * *

(c) No failure to file a report on Form 8-K that is required solely pursuant to Item 1.01,

1.02, 1.05, 2.03, 2.04, 2.05, 2.06, 4.02(a), 5.02(e), or 6.03 of Form 8-K shall be deemed to be a

violation of 15 U.S.C. 78j(b) and § 240.10b-5.

11. Amend § 240.15d-11 by revising paragraph (c) to read as follows

§ 240.15d-11 Current reports on Form 8-K (§ 249.308 of this chapter).

* * * * *

(c) No failure to file a report on Form 8-K that is required solely pursuant to Item 1.01,

1.02, 1.05, 2.03, 2.04, 2.05, 2.06, 4.02(a), 5.02(e), or 6.03 of Form 8-K shall be deemed to be a

violation of 15 U.S.C. 78j(b) and §240.10b-5.

PART 249—FORMS, SECURITIES EXCHANGE ACT OF 1934

12. The authority citation for part 249 continues to read, in part, as follows:

175
 Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C. 5461 et seq.; 18 U.S.C.

1350; Sec. 953(b) Pub. L. 111–203, 124 Stat. 1904; Sec. 102(a)(3) Pub. L. 112–106, 126 Stat.

309 (2012), Sec. 107 Pub. L. 112–106, 126 Stat. 313 (2012), Sec. 72001 Pub. L. 114–94, 129

Stat. 1312 (2015), and secs. 2 and 3 Pub. L. 116–222, 134 Stat. 1063 (2020), unless otherwise

noted.

Section 249.220f is also issued under secs. 3(a), 202, 208, 302, 306(a), 401(a), 401(b),

406 and 407, Pub. L. 107–204, 116 Stat. 745, and secs. 2 and 3, Pub. L. 116–222, 134 Stat. 1063.

* * * * *

Section 249.308 is also issued under 15 U.S.C. 80a–29 and 80a–37.

* * * * *

Section 249.310 is also issued under secs. 3(a), 202, 208, 302, 406 and 407, Pub. L. 107–

204, 116 Stat. 745.

* * * * *

13. Revise Form 20-F (referenced in § 249.220f) by adding Item 16K.

Note: Form 20-F is attached as Appendix B to this document. Form 20-F will not appear in

the Code of Federal Regulations.

14. Amend Form 6-K (referenced in § 249.306) by adding, in the second paragraph of

General Instruction B, the phrase “material cybersecurity incident;” before the phrase “and any

other information which the registrant deems of material importance to security holders.”

15. Revise Form 8-K (referenced in § 249.308) by:

a. Revising General Instruction B.1.;

b. Revising General Instruction G.1.; and

c. Adding Item 1.05.

176
Note: Form 8-K is attached as Appendix C to this document. Form 8-K will not appear in

the Code of Federal Regulations.

16. Revise Form 10-K (referenced in § 249.310) by:

a. Revising General Instruction J(1)(b); and

b. Adding Item 1C to Part I.

Note: Form 10-K is attached as Appendix D to this document. Form 10-K will not appear

in the Code of Federal Regulations.

* * * * *

By the Commission.

Dated: July 26, 2023.

Vanessa A. Countryman,

Secretary.

Note: The following appendices will not appear in the Code of Federal Regulations.

177
Appendix A—Form S-3

FORM S-3
* * * * *

INFORMATION TO BE INCLUDED IN THE REPORT

* * * * *

General Instructions

I. Eligibility Requirements for Use of Form S-3

* * * * *

A. Registrant Requirements.

* * * * *

3. * * *

(b) has filed in a timely manner all reports required to be filed during the twelve calendar months

and any portion of a month immediately preceding the filing of the registration statement, other than

a report that is required solely pursuant to Item 1.01, 1.02, 1.04, 1.05, 2.03, 2.04, 2.05, 2.06, 4.02(a)

or 5.02(e) of Form 8-K (§249.308 of this chapter). If the registrant has used (during the twelve

calendar months and any portion of a month immediately preceding the filing of the registration

statement) Rule 12b-25(b) (§240.12b-25(b) of this chapter) under the Exchange Act with respect to

a report or a portion of a report, that report or portion thereof has actually been filed within the time

period prescribed by that rule.

* * * * *

178
Appendix B—Form 20-F

FORM 20-F

*****

PART II

*****

Item 16K. Cybersecurity.

(a) Definitions. For purposes of this section:

(1) Cybersecurity incident means an unauthorized occurrence, or a series of related

unauthorized occurrences, on or conducted through a registrant’s information systems that

jeopardizes the confidentiality, integrity, or availability of a registrant’s information systems or

any information residing therein.

(2) Cybersecurity threat means any potential unauthorized occurrence on or conducted

through a registrant’s information systems that may result in adverse effects on the

confidentiality, integrity, or availability of a registrant’s information systems or any information

residing therein.

(3) Information systems means electronic information resources, owned or used by the

registrant, including physical or virtual infrastructure controlled by such information resources,

or components thereof, organized for the collection, processing, maintenance, use, sharing,

dissemination, or disposition of the registrant’s information to maintain or support the

registrant’s operations.

(b) Risk management and strategy. (1) Describe the registrant’s processes, if any, for

assessing, identifying, and managing material risks from cybersecurity threats in sufficient detail

179
for a reasonable investor to understand those processes. In providing such disclosure, a

registrant should address, as applicable, the following non-exclusive list of disclosure items:

(i) Whether and how any such processes have been integrated into the registrant’s overall

risk management system or processes;

(ii) Whether the registrant engages assessors, consultants, auditors, or other third parties

in connection with any such processes; and

(iii) Whether the registrant has processes to oversee and identify such risks from

cybersecurity threats associated with its use of any third-party service provider.

(2) Describe whether any risks from cybersecurity threats, including as a result of any

previous cybersecurity incidents, have materially affected or are reasonably likely to materially

affect the registrant, including its business strategy, results of operations, or financial condition

and if so, how.

(c) Governance. (1) Describe the board of directors’ oversight of risks from

cybersecurity threats. If applicable, identify any board committee or subcommittee responsible

for the oversight of risks from cybersecurity threats and describe the processes by which the

board or such committee is informed about such risks.

(2) Describe management’s role in assessing and managing the registrant’s material risks

from cybersecurity threats. In providing such disclosure, a registrant should address, as

applicable, the following non-exclusive list of disclosure items:

(i) Whether and which management positions or committees are responsible for assessing

and managing such risks, and the relevant expertise of such persons or members in such detail as

necessary to fully describe the nature of the expertise;

180
 (ii) The processes by which such persons or committees are informed about and monitor

the prevention, detection, mitigation, and remediation of cybersecurity incidents; and

(iii) Whether such persons or committees report information about such risks to the board

of directors or a committee or subcommittee of the board of directors.

Instructions to Item 16K(c).

1. In the case of a foreign private issuer with a two-tier board of directors, for purposes of

paragraph (c) of this Item, the term “board of directors” means the supervisory or non-

management board. In the case of a foreign private issuer meeting the requirements of

§240.10A-3(c)(3) of this chapter, for purposes of paragraph (c) of this Item, the term “board of

directors” means the issuer’s board of auditors (or similar body) or statutory auditors, as

applicable.

2. Relevant expertise of management in paragraph (c)(2)(i) of this Item may include, for

example: Prior work experience in cybersecurity; any relevant degrees or certifications; any

knowledge, skills, or other background in cybersecurity.

(d) Structured Data Requirement. Provide the information required by this Item in an

Interactive Data File in accordance with Rule 405 of Regulation S-T and the EDGAR Filer

Manual.

Instruction to Item 16K. Item 16K applies only to annual reports, and does not apply to

registration statements on Form 20-F.

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Appendix C—Form 8-K

FORM 8-K
* * * * *

GENERAL INSTRUCTIONS
* * * * *

B. Events to be Reported and Time for Filing of Reports.

1. A report on this form is required to be filed or furnished, as applicable, upon the occurrence of

any one or more of the events specified in the items in Sections 1 through 6 and 9 of this form.

Unless otherwise specified, a report is to be filed or furnished within four business days after

occurrence of the event. If the event occurs on a Saturday, Sunday or holiday on which the

Commission is not open for business, then the four business day period shall begin to run on, and

include, the first business day thereafter. A registrant either furnishing a report on this form

under Item 7.01 (Regulation FD Disclosure) or electing to file a report on this form under Item

8.01 (Other Events) solely to satisfy its obligations under Regulation FD (17 CFR 243.100 and

243.101) must furnish such report or make such filing, as applicable, in accordance with the

requirements of Rule 100(a) of Regulation FD (17 CFR 243.100(a)), including the deadline for

furnishing or filing such report. A report pursuant to Item 5.08 is to be filed within four business

days after the registrant determines the anticipated meeting date. A report pursuant to Item 1.05

is to be filed within four business days after the registrant determines that it has experienced a

material cybersecurity incident.

* * * * *

G. Use of this Form by Asset-Backed Issuers.

* * * * *

1. * * *

182
(a) Item 1.05, Cybersecurity Incidents;

(b) Item 2.01, Completion of Acquisition or Disposition of Assets;

(c) Item 2.02, Results of Operations and Financial Condition;

(d) Item 2.03, Creation of a Direct Financial Obligation or an Obligation under an Off-Balance

Sheet Arrangement of a Registrant;

(e) Item 2.05, Costs Associated with Exit or Disposal Activities;

(f) Item 2.06, Material Impairments;

(g) Item 3.01, Notice of Delisting or Failure to Satisfy a Continued Listing Rule or Standard;

Transfer of Listing;

(h) Item 3.02, Unregistered Sales of Equity Securities;

(i) Item 4.01, Changes in Registrant’s Certifying Accountant;

(j) Item 4.02, Non-Reliance on Previously Issued Financial Statements or a Related Audit Report

or Completed Interim Review;

(k) Item 5.01, Changes in Control of Registrant;

(l) Item 5.02, Departure of Directors or Principal Officers; Election of Directors; Appointment of

Principal Officers;

(m) Item 5.04, Temporary Suspension of Trading Under Registrant’s Employee Benefit Plans;

and

(n) Item 5.05, Amendments to the Registrant’s Code of Ethics, or Waiver of a Provision of the

Code of Ethics.

* * * * *

INFORMATION TO BE INCLUDED IN THE REPORT

Section 1 – Registrant’s Business and Operations

183
* * * * *

Item 1.05 Material Cybersecurity Incidents.

(a) If the registrant experiences a cybersecurity incident that is determined by the

registrant to be material, describe the material aspects of the nature, scope, and timing of the

incident, and the material impact or reasonably likely material impact on the registrant, including

its financial condition and results of operations.

(b) A registrant shall provide the information required by this Item in an Interactive Data

File in accordance with Rule 405 of Regulation S-T and the EDGAR Filer Manual.

(c) Notwithstanding General Instruction B.1. to Form 8-K, if the United States Attorney

General determines that disclosure required by paragraph (a) of this Item 1.05 poses a substantial

risk to national security or public safety, and notifies the Commission of such determination in

writing, the registrant may delay providing the disclosure required by this Item 1.05 for a time

period specified by the Attorney General, up to 30 days following the date when the disclosure

required by this Item 1.05 was otherwise required to be provided. Disclosure may be delayed for

an additional period of up to 30 days if the Attorney General determines that disclosure

continues to pose a substantial risk to national security or public safety and notifies the

Commission of such determination in writing. In extraordinary circumstances, disclosure may

be delayed for a final additional period of up to 60 days if the Attorney General determines that

disclosure continues to pose a substantial risk to national security and notifies the Commission of

such determination in writing. Beyond the final 60-day delay under this paragraph, if the

Attorney General indicates that further delay is necessary, the Commission will consider

additional requests for delay and may grant such relief through Commission exemptive order.

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 (d) Notwithstanding General Instruction B.1. to Form 8-K, if a registrant that is subject to

47 CFR 64.2011 is required to delay disclosing a data breach pursuant to such rule, it may delay

providing the disclosure required by this Item 1.05 for such period that is applicable under 47

CFR 64.2011(b)(1) and in no event for more than seven business days after notification required

under such provision has been made, so long as the registrant notifies the Commission in

correspondence submitted to the EDGAR system no later than the date when the disclosure

required by this Item 1.05 was otherwise required to be provided.

Instructions to Item 1.05.

1. A registrant’s materiality determination regarding a cybersecurity incident must be made

without unreasonable delay after discovery of the incident.

2. To the extent that the information called for in Item 1.05(a) is not determined or is unavailable

at the time of the required filing, the registrant shall include a statement to this effect in the filing

and then must file an amendment to its Form 8-K filing under this Item 1.05 containing such

information within four business days after the registrant, without unreasonable delay,

determines such information or within four business days after such information becomes

available.

3. The definition of the term “cybersecurity incident” in §229.106(a) [Item 106(a) of Regulation

S-K] applies to this Item.

4. A registrant need not disclose specific or technical information about its planned response to

the incident or its cybersecurity systems, related networks and devices, or potential system

vulnerabilities in such detail as would impede the registrant’s response or remediation of the

incident.

* * * * *

185
Appendix D—Form 10-K

FORM 10-K

*****

GENERAL INSTRUCTIONS

* * * * *

J. Use of this Form by Asset-Backed Issuers.

* * * * *

(1) * * *

(b) Item 1A, Risk Factors and Item 1C, Cybersecurity;

* * * * *

Part I

*****

Item 1C. Cybersecurity.

(a) Furnish the information required by Item 106 of Regulation S-K (§ 229.106 of this chapter).

* * * * *

186