Updates to the Financial Data Transparency Act

The recent Gov Fin 2024 conference in New York City provided a comprehensive exploration of government financial reporting, focusing on the implications of the Financial Data Transparency Act.

Ironically, just a few days later, the Securities and Exchange Commission issued its proposed Financial Data Transparency Act Joint Data Standards. Here are some of the rule highlights:

The Financial Data Transparency Act Joint Data Standards outlines standards for data transmission and schema and taxonomy formats to ensure interoperability of information transmitted to regulatory Agencies. 

Key aspects of the rule include:

1. Collections of information: Defined by the Paperwork Reduction Act.
2. Legal Entity Identifier: A 20-character alphanumeric code that uniquely identifies legal entities. The LEI is non-proprietary and available under an open license, used for regulatory reporting worldwide.
3. Some other common identifiers mentioned:
   • Unique Product Identifier for swaps and security-based swaps.
   • Classification of Financial Instruments code for other financial instruments.
   • Financial Instrument Global Identifier for all classes of financial instruments.
   • ISO 8601 date format for consistent date and time representation.
   • U.S. Postal Service abbreviations for identifying states and geographic locations.
   • Geopolitical Entities, Names and Codes standard for country codes.
   • ISO 4217 Currency Codes for currency identification.

The rule also aims to improve data integration, interoperability, and global transparency in financial reporting:

1. Data transmission formats: Formats such as CSV, XML, JSON, HTML (under certain conditions), and PDF/A are used to ensure information is digitally received, machine-readable, and fully searchable.
2. Schemas and taxonomies: These provide the syntax, structure, and semantic meaning of the data. High-quality, machine-readable descriptions enable automated verification and consistent semantic interpretation across different parties.
3. Properties of standards: The proposed joint standards for data transmission and schema and taxonomy formats should:
   • Be fully searchable and machine-readable.
   • Use schemas with machine-readable metadata defining the data’s semantic meaning.
   • Consistently identify data elements or assets related to regulatory information collection.
   • Be nonproprietary or available under an open license.
4. Regulatory compliance: Schemas and taxonomies should include metadata to track regulatory requirements, aiding in the identification of data assets subject to the Paperwork Reduction Act (PRA).
5. Interoperability: There is a focus on data interoperability across different formats to ensure consistency and ease of use among various financial regulatory entities.
6. Current formats: Existing formats like XML Schema Definition, Extensible Business Reporting Language (XBRL) Taxonomy, and JSON Schema already meet the required properties.
7. Flexibility and future adaptation: The standard emphasizes properties rather than specific formats, allowing for the adoption of new open-source formats as they emerge, provided they meet the listed properties.

The proposed rule requests comments on accounting and reporting taxonomies: 
1. Standardized data definitions: Taxonomies like the FFIEC Call Report, U.S. GAAP and IFRS facilitate consistent information exchanges through standardized data definitions.
2. Current usage: These taxonomies define data semantics and are used in regulatory reporting.
3. Request for comment: Agencies seek feedback on two options:

• Option 1: Establish a joint standard based on specific properties.
• Option 2: Identify and establish specific taxonomies as joint standards.

4. Definition and flexibility: Agencies request input on defining “taxonomy” and propose flexibility in using or modifying standard taxonomies to meet specific needs and legal requirements.
5. Multiple taxonomies: Agencies are considering allowing multiple taxonomies for individual data collection and invite comments on the needed flexibility for this approach.

An opportunity exists to engage in this rulemaking process and finally, implementation. GovFin 2025 will be held in Denver in July 2025, and will feature in-depth discussions, expert panels and hands-on workshops focused on navigating the new regulatory landscape effectively. Details will be released for registration in the coming months.