By Brian Egan, Director of Government Affairs, NABL
Originally Published 7/30/2024 and Updated 8/2/2024.

On July 30, 2024, the Federal Deposit Insurance Corporation (FDIC) released and approved a Notice of Proposed Rulemaking (Proposed Joint Rule) pertaining to the first stage of the Financial Data Transparency Act (FDTA) rulemaking process. While the FDIC is one of nine covered agencies tasked with jointly proposing a data standard that will eventually apply to data submitted to the Municipal Securities Rulemaking Board (MSRB), it is important to note that the Securities and Exchange Commission (SEC) has not yet released or voted on a Proposed Joint Rule. Each of the Covered Agencies must independently adopt the Proposed Joint Rule. [1]

The SEC, as well as other Covered Agencies, may or may not make additional substantive changes to its respective Proposed Joint Rule. If substantive changes are made, the FDIC may require an additional vote on the amended Proposed Joint Rule. Nonetheless, the draft from the FDIC offers the first real insight into the work of the Covered Agencies to select a data standard and implement the FDTA.

Background

The FDTA aims to standardize the presentation of data reported to and procured by several federal financial regulators in two phases: 1) a joint rulemaking process between the Covered Agencies to establish shared data standard characteristics across the Covered Agencies; and 2) rulemakings conducted by each individual Covered Agency to conform the data reporting from financial entities required by the respective Covered Agency with the characteristics established in the Joint Rule. The Proposed Joint Rule is the start of the first phase of rulemaking under the FDTA.

Commenting and the Importance to the Municipal Market

While the word “municipal” only appears once in the Proposed Joint Rule, the SEC’s final rule will shape and direct the new data standards applied by the SEC to financial entities who submit information to the MSRB. Proponents of data standardization tout that such standards will offer new efficiencies in the municipal securities market― but like all new regulatory requirements, such standards risk introducing increased burdens and cost for market participants.

As noted above, the Proposed Joint Rule has only been approved by one of the Covered Agencies (the FDIC). A 60-day comment window will commence after each of the Covered Agencies have approved the Proposed Joint Rule and it is published in the Federal Register. NABL has begun to solicit comments from members that will inform its position on the Proposed Joint Rule and any response comments NABL submits on behalf of the organization. We encourage you to submit your comments via the form below:

What is in the Proposed Joint Rule?

The Proposed Joint Rule provides background information on the FDTA as well as the Covered Agencies’ work and consultations to date and addresses several areas, including:

1. Collections of Information: The Covered Agencies cite the Paperwork Reduction Act’s (PRA’s) broad definition of “collections of information” and further note that the application of the term in the context of the FDTA is limited to “information reported to each [Agency] by financial entities under the jurisdiction of the [Agency].” The Covered Agencies provide additional instances in which information collection may fall outside of the scope of the Joint Rule.
2. Legal Entity Identifier: Section 124(c)(1)(A) of the FDTA requires the Covered Agencies to select a legal entity identifier meeting statutorily prescribed characteristics, including that it be nonproprietary and available under open license. The Proposed Joint Rule proposes the use of the 20-character alphanumeric Legal Entity Identifier (LEI) managed by the Global Legal Entity Identifier Foundation (GLEIF). While the Proposed Joint Rule proposes the LEI as a standard, it defers to the individual Covered Agencies on whether reporting entities would be required to obtain an LEI to submit information to the Covered Agency. In order to obtain or renew an LEI, entities pay a fee to a Local Operating Units (LOUs).
3. Other Common Identifiers: The Proposed Joint Rule also establishes several other identifiers across the Covered Agencies, including: the Unique Product Identifier (UPI) for the reporting of swaps and security-based swaps; Classification of Financial Instruments (CFI) codes for other types of financial instruments; the Financial Instrument Global Identifier (FIGI) for the identification of financial instruments. The Covered Agencies also propose several standards established by various standards-setting bodies for the formatting of data fields for dates, times, identification of States and countries, currencies, and census tract designations.
4. Data Transmission and Schema and Taxonomy Format Standards: The Covered Agencies do not propose specific shared data formats, schemas, taxonomies, or a universal standard in the Proposed Joint Rule. Instead, the Covered Agencies propose to establish a joint standard that refers to a list of properties rather than any specific data transmission or schema and taxonomy formats. The Proposed Joint Rule lists examples of various data transmission formats that would likely meet the FDTA’s requirements, including eXtensible Markup Language (XML) and Java Script Object Notation (JSON). It also lists examples of other formats, including HyperText Markup Language (HTML) and Portable Document Format (PDF), that would meet the requirements under certain conditions such as those in which such formats include schemas and structured tagging. An individual Covered Agency would be in compliance with the FDTA so long as its selected taxonomy is consistent with the properties outlined in the Proposed Joint Rule. The Covered Agencies in the Proposed Joint Rule solicit feedback from stakeholders on its proposed approach to establishing the joint standards for data transmission or schema and taxonomy formats including whether the Covered Agencies should establish specific standards that apply to all Covered Agencies.
5. Request for Comment: Accounting and Reporting Taxonomies: The FDTA does not require the Covered Agencies to establish specific taxonomies as part of the Joint Rulemaking, and the Covered Agencies defer to the individual Covered Agencies on the selection of applicable taxonomies. The Proposed Joint Rule solicits comments on two proposals: 1) Whether to establish a joint standard for taxonomies based on certain properties, and if so, the properties that should be set forth in the joint standard; or, 2) whether to establish specific taxonomies, and if so, the taxonomies that should be set forth in the joint standard (such as those listed above or other specific taxonomies).
   
   The Proposed Joint Rule notes that if the Covered Agencies select a single or several shared taxonomies as part of the joint standards setting process, such a selection would not preclude individual Covered Agencies from tailoring or using their own additional taxonomies to meet agency-specific needs. It is worth noting that participants use multiple accounting standards beyond the Generally Accepted Accounting Standards (GAAP) developed and maintained by the Governmental Accounting Standards Board (GASB). Therefore, Covered Agencies may need to offer multiple taxonomies even within one single form of data collection (e.g. financial data).
6. General Request for Comment: Beyond these specific areas, the Covered Agencies also broadly solicit comment from stakeholders on data standards, data transmission formats, and schemas and taxonomies to be considered in the context of finalizing the Joint Rule.

What’s NOT in the Proposed Joint Rule?

The Covered Agencies were tasked with developing joint standards broad enough to apply to an array of financial entities subject to the regulations of several different regulators. As such, we expected the Proposed Joint Rule to be high level and not overly detailed on how the FDTA will apply in the context of the municipal market.

As expected, the Joint Proposed Rule defers many elements of the FDTA’s implementation to the discretion of the individual Covered Agencies. Municipal market participants will likely need to wait for the SEC’s individual agency rulemaking for answers to questions important to municipal market participants, including:

• Which financial entities are covered by the SEC’s rule?
• How will the SEC’s rule be scaled to avoid burdening smaller regulated entities and the other providers of financial information?
• Which types of data and information submitted to the MSRB will be covered by the SEC’s rule?
• If the SEC’s rule is applicable to financial disclosure information― how would the introduction of new data elements, such as metadata, be subject to the antifraud rules?

NABL will provide additional analysis as details become available.

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[1] The Covered Agencies designated to issue the Proposed Joint Rule include the Office of the Comptroller of the Currency (OCC), the Federal Reserve Board, The Federal Deposit Insurance Company (FDIC), the National Credit Union Administration (NCUA), the Consumer Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA), the Commodity Futures Trading Commission (CFTC), the Securities Exchange Commission (SEC), and the Department of Treasury and are referred to herein collectively as the “Covered Agencies” or individually as a “Covered Agency”.

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