As the June 2024 deadline looms for US regulators within the scope of the Financial Data Transparency Act (FTDA) to provide joint rules on data standards and reporting formats, the question of what these standards and formats will be remains open. Front runners are the Legal Entity Identifier (LEI) and eXtensible Business Reporting Language (XBRL), but nothing is certain and whatever the outcome, timelines are tight with final rules to be published in December 2024 ahead of regulatory agencies fully adopting the standards by 2026.
FTDA was signed into law by President Biden in December 2022. The act intends to streamline the process of reporting by creating uniform standards and eliminating proprietary formats that slow down reporting and create inconsistencies across regulatory agencies.
While regulators will agree the standards, financial institutions must also respond to the regulation by implementing said standards, essentially moving away from paper-based forms and proprietary data formats to electronic reporting and open source formats.
Regulators within scope of FDTA are the: Federal Reserve; Securities and Exchange Commission (SEC), Federal Deposit Insurance Corporation (FDIC); Office of the Comptroller of the Currency (OCC), Consumer Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA); National Credit Union Administration (NCUA); Commodity Futures Trading Commission (CFTC), and Municipal Securities Rulemaking Board (MSRB).
An opportunity for the LEI
The act is a major undertaking for regulators and regulated firms. It is also an opportunity for the LEI, if selected, to move to another level in the US, which has been slow to adopt the identifier, and significantly increase numbers that will strengthen the Global LEI System.
While industry experts suggest regulators in scope of FDTA, collectively called Financial Stability Oversight Council (FSOC) agencies, initially considered data standards including the LEI and Financial Instrument Global Identifier published by Bloomberg, they suggest the LEI is the best match for the regulation’s requirements for ‘Covered agencies to establish “common identifiers” for information reported to covered regulatory agencies, which could include transactions and financial products/instruments.” The act specifically requires the adoption of a common, non-proprietary, open license, machine readable legal entity identifier.
If the LEI is named in the Notice of Proposed Rulemaking (NPRM) in June 2024 and mandated in the final rules due for publication in December 2024, it could be implemented relatively easily as both regulators and financial institutions are cognizant of the identifier, many financial institutions use the identifier, and it will not replace but rather become a mandatory addition to existing identifiers.
A challenge for XBRL
The selection and implementation of a reporting taxonomy is more challenging as it will require many of the regulators to abandon existing reporting practices often based on PDFs, text and CSV files, and replace these with electronic reporting and machine-readable tagging. XBRL fits the bill, say industry experts, although there has been pushback from some agencies that see the unfunded requirement for change as too great a burden.
The June 2024 joint agency standards rules will answer these questions and be open to industry consultation, ahead of the final rules being published in December 2024. Meantime, financial firms in scope of FDTA need to review their data management and reporting processes. If they do not have software that aligns with the principles of the act – data searchability, transparency and standardisation – now is the time to look for a solution that will comply with requirements.
Find out more about FDTA in A-Team Group’s Regulatory Data Handbook.
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