Latest Tips on Brexit Disclosure

Now that the British government is coming apart at the seams over Brexit, this might be a good time to revisit what companies should be disclosing to investors and the public about their exposure to Brexit risk.

SEC chairman Jay Clayton has been talking up Brexit disclosure for several months, urging companies to give investors more detail about the possible consequences of Britain leaving the European Union. That’s no easy task, given that Britain itself seems to have no clue what sort of exit it wants to make, and the (alleged) departure date of March 29, 2019 is now barely one quarter away.

Still, we have some fresh advice from SEC officials, who discussed Brexit disclosures at the AICPA public company accounting conference in Washington this week. Let’s start there.


Bill Hinman, director of the SEC’s Division of Corporation Finance, told attendees that earlier this year the SEC pulled disclosures from roughly 100 companies that had plausible Brexit risk to see what those firms said about the issue. The disclosures had “a pretty wide range of depth and detail” — everything from one bullet point in a description of international business, to narratives that ran one full page or more.

That’s a pretty wide range, indeed. So what do Hinman and his henchmen in Corporation Finance want to see? Disclosure that gives the reader “a little bit of insight into how the company is thinking” about the issue, he said.

A discussion of how Brexit might affect licensing, regulatory approvals, or the firm’s ability to ship goods or manage its supply chain across whatever EU-UK border finally comes to pass.

Especially for companies with operations in both Britain and the European Union, he said, that could be a discussion of how Brexit might affect licensing, regulatory approvals, or the firm’s ability to ship goods or manage its supply chain across whatever EU-UK border finally comes to pass.

“We totally recognize that Brexit is hard to predict… but we also think lots of companies are having discussions,” Hinman said. “Their planning folks and their boards are discussions about how they are preparing… We don’t expect people to recite their board minutes on this topic, but we do think it could be distilled and more disclosure — not just bullet points and boilerplate —  is called for.”

Brexit Disclosures Already

With those thoughts in mind, I dropped by to research what some companies in the S&P 500 have been disclosing already. For example, here is what Mattel had to say in its latest quarterly filing from Oct. 25:

In the short-term, volatility in the British pound sterling could continue as the United Kingdom negotiates its anticipated exit from the European Union. In the longer term, any impact from Brexit on Mattel’s United Kingdom operations will depend, in part, on the outcome of tariff, trade, regulatory, and other negotiations. Mattel’s United Kingdom operations represented approximately 4 percent of Mattel’s consolidated net sales for the nine months ended September 30, 2018.

Hmmm. Mattel hits one important note talking about volatility in the British pound, which ultimately will affect the cash Mattel has at end of period. It also cites tariffs and regulatory change as other concerns. The language, however, is rather vague. Mattel also gives that 4 percent figure, which is useful because it gives investors a sense of proportion — that U.K. revenues are a small, but not negligible, part of total revenue.

Meanwhile, AIG disclosed this item in a filing on Nov. 2 as a subsequent event:

On October 25, 2018 we announced that our European subsidiary, AIG Europe Limited has received approval from the High Court of England & Wales to transfer its business into two new entities: American International Group UK Limited and AIG Europe SA in preparation for the UK’s exit from the European Union. This is the final UK approval needed to complete the restructuring of our European operations and ensure our readiness for Brexit.

That disclosure addresses one of Hinman’s concerns head-on: regulatory approvals necessary to keep business going. Then again, as Hinman and many others have noted, the financial services sector has been ahead of everyone else trying to avoid a Brexit meltdown.

And then we have Starbucks, which seems to be one of those bullet-point disclosure types  that Hinman frowned upon during his remarks. In its latest 10-K filed on Nov. 16, Starbucks listed 13 bullet points while describing international business risks. Brexit was bullet point No. 4:

  • uncertainties and effects of the implementation of the United Kingdom’s referendum to withdraw membership from the European Union (refer to as “Brexit”), including financial, legal, tax and trade implications;

For the record, Hinman did not name Starbucks or any other specific company when complaining about the bullet point approach. Still — come on, Starbucks. Wake up and smell the coffee on this issue.

Those are just a few samples. Yes, Brexit disclosure is a difficult issue, but clearly the SEC is thinking about it, so your risk disclosures need to follow suit. And regardless, it could be worse, You could be Theresa May.

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