Data Beta: Statement on Financial Data Transparency Act Joint Data Standards Proposal

I support issuing this proposal, which is the first step in implementing the Financial Data Transparency Act (“FDTA”), which seeks to enhance the accessibility, usefulness, and interoperability of data reported to federal financial regulators. Together with other US financial regulators, we are proposing joint data standards, which we will then apply to our respective rulebooks in agency-specific rulemakings.

If well implemented, the FDTA could enhance the analytical capability of regulators, investors, and other market participants and reduce compliance costs for regulated entities. However, this result is not guaranteed. Mangling implementation could result in costs disproportionate to the benefits. FDTA regulations, for example, could drive municipal issuers away from securities markets, prevent companies from going and staying public, or force the publication of unreliable data. To maximize the potential for the FDTA to serve the public interest, we need broad public input. I urge commenters to address the questions in the proposing release and my additional questions below, as well as to provide advance thoughts on the second, agency-specific, phase of the FDTA rulemaking process.

1. Costs and benefits: The Commission did not conduct an economic analysis for this proposal, so I particularly welcome commenters’ input on the proposal’s costs and benefits and the economic consequences of subsequent choices that individual agencies might make in their second phase rulemakings.
   1. Costs of FDTA implementation:
      1. What are the total direct and indirect costs of adopting the contemplated data standards? Do these costs vary based on factors such as firm size or type of regulatory filing?
      2. How have standardized data costs changed over time? Will these trends continue?
      3. How much of the FDTA compliance burden is likely to stem from the one-time cost of setting up new data systems as opposed to ongoing compliance costs?
      4. Will certain types of entities, such as municipal issuers, bear disproportionate FDTA-related costs? If so, what can we do to reduce those costs?
   2. Benefits of FDTA implementation:
      1. What are the potential benefits of FDTA implementation?
      2. How could the Commission maximize the utility of financial regulatory information filed in compliance with the FDTA-mandated data standards? For example, should the Commission work to reduce error rates in structured data filings?
      3. In light of the Commission’s broad discretion in implementing the second phase of FDTA rulemaking, are there areas where full application of these proposed data standards would be particularly helpful or unhelpful?[1]
2. Financial Data Interoperability. The FDTA aims to promote the interoperability of financial regulatory data across financial regulators.[2]
   1. What could the benefits of interoperability be in the intermediate and longer term? What level of interoperability is necessary to achieve these benefits?
   2. What are the largest hurdles to interoperability of financial regulatory data across financial regulators? How should we address those hurdles?
   3. How could we achieve the benefits of interoperability without imposing unnecessary costs on reporting firms, particularly smaller ones?
3. Legal Entity Identifier: The FDTA mandates a “common nonproprietary legal entity identifier that is available under an open license for all entities required to report to” the regulators.[3] The proposal specifies this standard as the Legal Entity Identifier (“LEI”), which the Global LEI Foundation (“GLEIF”) manages and supports.[4]
   1. Mandating the adoption of any product or service managed by a third-party carries risks, including the possibility that the third-party could use its regulatory-mandated advantage to, for example, raise fees inordinately, demand obtrusive information from registrants, or provide poor service. Is this a risk of the LEI mandate? If so, how can we mitigate this risk, or does the existing regulatory oversight of the GLEIF already adequately manage this risk?

1. 2. Would timely obtaining and maintaining the required LEIs be manageable for small entities and for large entities with many subsidiaries?

3. 3. How would an LEI mandate integrate with other entity identifiers such as the Central Index Key (“CIK”), which identifies EDGAR filers?
4. CUSIP and FIGI: The proposal’s scope designates as an identifier of financial instruments the Financial Instrument Global Identifier (“FIGI”), which is “established by the Object Management Group . . . an open-membership standards consortium.”[5] The joint rulemaking does not include the Committee on Uniform Securities Identification Procedure (“CUSIP”), a common securities identifier, because CUSIP is “proprietary and not available for open license in the United States.”[6]
   1. Does the FDTA’s statutory mandate extend to financial instruments?
   2. Is the proposing release correct that the FIGI does and the CUSIP does not meet the FDTA’s criteria for designation as a joint standard? If CUSIP does not now meet the criteria, what changes would enable it to do so?

4. 3. What, if any, policy issues arise from the FIGI being managed by a standards consortium?
   4. How should the Commission consider FIGI and CUSIP in setting data standards for financial instruments in the second-phase rulemaking?
5. Scope of the data standards: To implement the FDTA successfully, we need to scope it properly and remain within statutory parameters.
   1. Did the joint regulators strike the right balance when choosing the proposal’s scope, in light of the statutory mandate?
   2. What policy issues should the Commission consider when adapting its rulebook to conform to the joint data standards, particularly given the statutory discretion afforded to the Commission (and other implementing agencies) in the second-phase rulemaking?[7]
6. Principles-based regulation and maintaining updated FDTA standards: Hardwiring a technology into a rule runs the risk of preserving that requirement far after that technology’s expiration date.[8] To benefit from FDTA implementation, we need meaningful consistency of data standards across agencies, which requires at least some specificity regarding data standards. If we are not vigilant, however, the FDTA could inhibit data standards from evolving over time or force firms to maintain parallel data systems. The proposal affords some flexibility in data transmission and schema and taxonomy format standards,[9] while specifying other data standards.[10]
   1. Does the proposal strike the right balance between principles and prescription? If not, how should the approach change?
   2. Would the balance the proposal strikes allow data standards to be updated in a timely manner? If not, what would work better?
   3. How often should regulators revisit the mandated standards to ensure that they remain current? Should we build a requirement to revisit the standards into the final rule?
   4. How, if at all, will artificial intelligence or other technologies influence the need for structured data? How should we take these potential future developments into account in implementing the FDTA?

Today’s proposed rule is a reasonable first step in the FDTA implementation journey. For this process to have the best chance of unlocking the FDTA’s promise and avoiding its peril, public discussion is essential. I welcome commenters’ thoughts on these questions and how the second phase should unfold, particularly given the meaningful flexibility that the joint regulators will have during that phase.

Joint rulemakings are inevitably challenging. I therefore particularly appreciate the hard work of staff in the SEC’s Divisions of Corporation Finance, Economic and Risk Analysis, Investment Management, and Trading and Markets, and in the Offices of the Chief Data Officer, Credit Ratings, the General Counsel, and Municipal Securities, along with staff at the other financial regulators who have worked on this first stage of FDTA implementation.