After financial agencies’ ‘Herculean effort’ on joint data standards, the wait begins
Three-plus years after the Financial Data Transparency Act was signed into law, nine federal agencies finalized joint data standards this month for how certain information is submitted to financial regulators. Data experts say the final rule will lead to fewer errors, more reliable outputs from AI and potentially lay the groundwork for a broader business standard.
In signing on to the standards, the agencies agreed to make financial regulatory reporting both machine-readable and interoperable. No reporting requirements will immediately change under the rule, but it will lock in a handful of key standards for how data is submitted going forward.
“The establishment of joint data standards across federal financial regulators will help ensure consistent data collection that will both ease burdens for financial institutions and make data more accessible to investors,” Securities and Exchange Commission Chairman Paul Atkins said in a press release.
The SEC was joined in signing the rule by the Treasury Department, the Federal Reserve, the Commodity Futures Trading Commission, the Office of the Comptroller of the Currency, the Consumer Financial Protection Bureau, the Federal Deposit Insurance Corp., the National Credit Union Administration, and the Federal Housing Finance Agency.
“The final rule is something that we had been watching, and to get nine agencies to agree on changes is a Herculean effort,” said Ashley Nelle-Davis, vice president of the nonprofit Data Foundation. “And they pulled it off.”
Identifying seven “common identifiers” — dates, geographic locations, currencies, etc. — is an especially critical piece of the rule for the purposes of interoperability, data experts believe, as is the “legal entity identifier.” The LEI is a 20-character, alphanumeric identifier standard that is recognized globally and available via an open license.
The agencies noted in the final document that the LEI was supported by “many commenters” during the public input period because it “would promote interoperability, would provide improved identification of entities across jurisdictions, is already well-established in at least some markets and among larger financial entities, has low costs and fees, and has a transparent and independent governance structure.”
Nelle-Davis said that adopting the LEI was the “main headline” for the Data Foundation.
“It follows a couple of things that make it more accessible, not just for government but for the public,” she said. “It’s common, non-proprietary, and open to the public. … It could be cost-saving, and it’s a reliable data standard.”
The Global Legal Entity Identifier Foundation (GLEIF), which advocates for the expanded use of the LEI in the private sector, praised the adoption of the rule in a blog post, calling it “a milestone that promises to significantly enhance regulatory oversight and reduce compliance burdens.”
The LEI embrace also speaks to the broader move toward data harmonization. Communication between the public and private sectors on financial reporting should be eased considerably with the new taxonomy format standards, as well as machine-readable and searchable data and schemas.
Adam Sotirokos, a director at the tech consulting firm iTech AG, works with federal financial agencies on managing data and creating process flows. From his point of view, there’s excitement about the ability to create more transparent data, potentially mixed with some hesitation about adding “one more thing [to the] to-do list.”
“There’s always kind of a push-and-pull with any of these regulations, as far as what is going to be most useful and what is going to be the least amount of effort,” he said. “They’re financial government agencies — they have a laundry list of regulations and compliance that they have to deal with every day.”
Nelle-Davis described reaction to the rule among stakeholders as “muted celebration.” Some data experts see a rule where “so much more could have been done,” while others recognize the long history of trying to bring the LEI to financial regulatory reporting. Ultimately, she believes there’s recognition that data standards like these are more critical than ever amid the proliferation of artificial intelligence.
“There will be errors, but data standards can help you more quickly go back and review,” she said. “It can help feed into a more reliable analysis and output from AI, whereas now there’s a lot of room for error. … Better data is going to lead to more reliable use of technologies.”
There’s also the potential for these joint standards to lay the groundwork for U.S. data experts’ white whale: Standard Business Reporting. Australia and the Netherlands are two key examples of countries that have adopted SBR, and the Government Accountability Office has advocated for a similar approach here. Nelle-Davis co-authored a white paper last year that made the case for harmonizing the FDTA with SBR.
“You kind of have the upfront cost necessary for skills and that change, but over time it significantly reduces regulatory burden,” she said. Regulators would have a “more reliable overview of the data” under an SBR equivalent “because it’s higher quality, it’s standardized, it’s got the right metadata, and everything kind of follows it.”
Whether an SBR-type standard materializes remains to be seen, but for now, data experts are waiting to see how smooth implementation of the joint standards will be. The agencies missed the initial deadline to issue the final rule, but now that it’s done, they still have until Oct. 1 for it to go into effect. From there, the nine agencies have a two-year runway to finalize rulemaking and implement the joint standards into their reporting requirements.
“It’s a real opportunity for some agencies … to figure out where all the data lives and make sure they have all the data inventoried,” Sotirokos said. “But it also provides [an] opportunity for some agencies to kind of drag their heels and do nothing for a while … which could end up delaying our ability to actually meet these standards.”
