The Latest News on the Financial Data Transparency Act
XBRL, the machine-readable data format, can now take centre stage in US regulators’ data collection activities. President Joe Biden on December 23, 2022, signed into law the National Defense Authorization Act for Fiscal Year 2023, which includes the Financial Data Transparency Act (FDTA).
A Brief Timeline: In May 2022, the FDTA was introduced in the US Senate by Senators Mark R Warner and Mike Crapo as legislation to improve the accessibility and transparency of information published by US financial regulatory agencies. The Act was introduced in the US House of Representatives in May 2021 and was passed by a 400-19 vote on October 25, 2021. The Act was known as the Financial Transparency Act before it was passed in the House of Representatives.
What Does the Financial Data Transparency Set Out To Do?
The Financial Data Transparency Act, if passed, will require the major US financial regulators to adopt and implement uniform and non-proprietary data standards to collect and disseminate information. The data standards will include common legal identifiers for financial products, instruments, and transactions. The US Treasury Department and seven major regulators will develop the new standards.
The purpose that the Financial Data Transparency legislation will serve is:
- A common business reporting standard across US agencies
- Reduced compliance burden for private sector entities
- Improved transparency and accountability
Which US Regulators Does the Financial Data Transparency Act Cover?
The US financial regulatory agencies that will be covered by the Financial Data Transparency Act include…
- The Federal Reserve
- The Securities and Exchange Commission (SEC)
- The Federal Deposit Insurance Corporation (FDIC)
- The Office of the Comptroller of the Currency (OCC)
- The Consumer Financial Protection Bureau (CFPB)
- The Federal Housing Finance Agency (FHFA)
- The National Credit Union Administration (NCUA)
- The Commodity Futures Trading Commission (CFTC)
- The Municipal Securities Rulemaking Board (MSRB)
The Rationale For Implementing The Financial Data Transparency Act
Most US regulators collect information from their regulated entities in PDF or plain-text HTML formats. They do not employ data standards to structure the information. Moreover, they use inconsistent identifier codes for entities, products, and transactions.
This is a problem because static formats such as PDF and plain-text HTML lock valuable information from investors and the regulators themselves, making any attempt to analyze and compare data a highly manual process.
Structured data, on the other hand, would bring all regulatory filings on an even keel by rendering all regulatory filings machine-readable – and thereby easy to access, analyze, and compare. The regulated entities may use software to prepare their filings in structured data format. And the use of software introduces automation, which includes pulling in the relevant data from internal systems.
Data standards would also facilitate the use of consistent identifier codes and render all regulatory information transparent and useful.
The Three Main Benefits Of The Financial Data Transparency Act
A Ready Data Pool For RegTech Applications
Since the major US financial regulators will be adopting data standards for the information they collect from the entities they oversee, regulatory technology applications will have a wealth of information for analysis, automation, and reproduction.
Entity Identifiers Will Boost Transparency
The Act mandates the use of open, non-proprietary legal identifiers for financial products, instruments, and transactions by all the regulatory bodies concerned. This will make all reporting entities identifiable across regulatory mandates, which will be a huge fillip for transparency.
Digital Reports That Are Highly Accessible
Information that needs to be published under existing laws needs to be made available in an open data format that facilitates digital access and bulk downloads with no restrictions.
The Most Popular Open Data Standard For Financial Disclosure – XBRL
Once the Financial Data Transparency Act is passed, it is most likely that the major US regulators will require data collection in the eXtensible Business Reporting Language (XBRL) format. The US Treasury Department and seven major regulators may develop the XBRL taxonomies based on which information must be collected from the regulated entities.
XBRL and the more advanced Inline XBRL allow financial disclosures to be labeled with machine-readable tags. Any document in which all disclosures are labeled with XBRL tags becomes a machine-readable document that is easy to access and analyze. The XBRL tags need to be taken from an XBRL taxonomy, a collection of all the digital labels that represent the financial concepts that need to be disclosed.
In the US, the Securities and Exchange Commission (SEC) and the Federal Energy Regulatory Commission (FERC) require their regulated entities to file data in the XBRL | iXBRL format.
Watch this space for more updates on the Financial Data Transparency Act.
