US Regulators Propose Data Standards to Implement the Financial Data Transparency Act

Several federal financial regulators¹ (the “Agencies”) have approved and published an interagency proposal to establish data standards that promote interoperability of financial regulatory data across these agencies (the “Proposal”). The Agencies issued the Proposal as required by the Financial Data Transparency Act of 2022 (FDTA) and have requested comment on their jointly established data standards.

Comments on the Proposal are due 60 days after it is published in the Federal Register, which is expected shortly. In this Legal Update, we provide background regarding the FDTA and summarize key aspects of the Proposal.

Background

The FDTA was enacted on December 23, 2022. The FDTA amended, among other acts, the Financial Stability Act of 2010 (Title I of the Dodd-Frank Wall Street Reform and Consumer Protection Act, hereinafter, “Title I”) by adding a section 124 (“Section 124”). Section 124 requires the Agencies to jointly issue a rule (the “Joint Final Rule”) that establishes data standards for the collections of information reported to each Agency by financial entities under the jurisdiction of the Agencies and data collected from the Agencies on behalf of the Financial Stability Oversight Council (FSOC). The data standards must include a legal entity identifier with certain properties specified by the statute and should include other common identifiers. The data standards should, to the extent practicable, satisfy other criteria set forth in Section 124, including that the standards should render data machine-readable, define the semantic meaning of the data, and incorporate standards developed and maintained by voluntary consensus standards bodies.

The FDTA amended most of the Agencies’ enabling statutes to require them to implement the Joint Final Rule in their own reporting regimes.

For example, the FDTA amended the Federal Deposit Insurance Act (the “FDI Act”) by adding a section 52 (“Section 52”), which requires the FDIC to issue rules (each rule, an “FDIC Rule”) adopting applicable data standards that have been established by the Joint Final Rule. The FDIC Rules must apply to collections of information with respect to information received by the FDIC from any depository institution under the FDI Act or any financial company under title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Likewise, the FDTA amended the Investment Advisers Act of 1940, the Investment Company Act of 1940, the Securities Exchange Act of 1934, and the Securities Act of 1933 by adding new provisions that require the SEC to issue rules (each rule, an “SEC Rule”) adopting applicable data standards that have been established by the Joint Final Rule to various SEC data standards. The SEC Rules must apply to collections of information with respect to (i) investment advisers’ reports, (ii) registration statements and reports under the Investment Company Act of 1940, (iii) information required to be submitted or published by nationally recognized statistical rating organizations, (iv) asset-backed securities disclosures, (v) corporate disclosures under the Securities Act of 1933, (vi) periodic and current corporate disclosures under the Securities and Exchange Act of 1934, (vii) proxy and consent solicitation materials, and (viii) securities-based swap reporting.

The FDTA also amended the Securities Exchange Act of 1934 to require that the Municipal Securities Rulemaking Board and registered national securities associations also adopt data standards based on the Joint Final Rule. Similar provisions were added to most of the other Agencies’ enabling statutes.²

Key Aspects of the Proposed Rulemaking

Collections of Information

The Proposal would establish joint standards for collections of information reported to each Agency. Although the FDTA does not define the term “collections of information,” it is defined in the Paperwork Reduction Act of 1995 (“PRA”), an act to which the Agencies are subject. The Proposal would define the term “collections of information” in the FDTA by reference to the definition of that term in the PRA. The Proposal mentions that the PRA definition is widely understood by the Agencies and by public stakeholders and that all approved and pending PRA collections of information have been categorized and are accessible to the Agencies and the public.

Legal Entity Identifier

Section 124 requires the joint standards to include “a common nonproprietary legal entity identifier that is available under an open license for all entities required to report to” the Agencies. The Proposal would establish International Organization for Standardization (ISO) 17442 – Financial Services – the Legal Entity Identifier (LEI) as the legal entity identifier joint standard. The LEI is a global, 20-character, alphanumeric identifier standard that uniquely identifies a legal entity. The LEI is nonproprietary and is made publicly available by the Global LEI Foundation under an open license, free of charge to any interested user. To date, the LEI has mostly been used in the United States in relation to the derivatives markets, with most other regulators requiring its submission only if a reporter already has one (i.e., it is not mandatory to obtain an LEI).

The Agencies acknowledged that requiring entities to obtain an LEI would impose some cost. The LEI system is based on a cost-recovery model, and the cost associated with obtaining and renewing an LEI covers the administrative expenses associated with the LEI system. However, the Proposal mentions that it would not impose any requirements that any particular entity obtain an LEI and incur the associated costs; such requirements would be determined by the Agency-specific rulemakings. SEC Commissioners Peirce and Uyeda both raised concerns about mandating the adoption of a product or service managed by a third party, which could raise fees or provide poor service. Commissioner Uyeda pressed the SEC to consider other options, such as the Central Index Key (CIK) (which is already required to make EDGAR filings with the SEC) or the file number issued by the Delaware Department of State’s Division of Corporations.

Other Common Identifiers

In addition to the LEI, the Proposal would identify the following common identifiers in the joint standards.

• UPI and CFI. For swaps and securities-based swaps, the Proposal would identify ISO 4914 – Financial services — Unique product identifier (UPI) as a standard. The UPI already is used in the derivatives markets.³ For other types of financial instruments, the Proposal would identify ISO 10962 – Securities and related financial instruments — Classification of financial instruments (CFI) code. The UPI and CFI are complementary standards and provide a taxonomic classification system for all types of financial instruments. The Agencies mention in the Proposal that these standards are useful for aggregating data and increasing global transparency, which may be beneficial in financial markets such as swaps, forwards, and non-listed options.
• FIGI. For an identifier of financial instruments, the Proposal would establish the Financial Instrument Global Identifier (FIGI) as the standard. FIGI was created by the Object Management Group, which is an open-membership standards consortium. The FIGI is an international identifier for all classes of financial instruments including, but not limited to, securities and digital assets. It is a nonproprietary identifier available under an open license globally. The Agencies mention that FIGI provides free and open access and coverage across all global asset classes. The FIGI also is intended to fill a gap for asset classes that do not normally have a global identifier, including loans.
• Date. For date fields, the Proposal would establish the date as defined by ISO 8601 using the Basic format option as the standard. The order of the elements used to express date and time in ISO 8601 is year, month, day, hour, minutes, seconds, and milliseconds. For example, September 27, 2022 at 6 p.m. is represented as 2022-09-27 18:00:00.000. The Agencies mention that consistent representation of dates may help facilitate data integration and interoperability across diverse collections. When displayed on forms, web pages, user interfaces, and other media, date and time can be presented in other formats (e.g., Month, Day, Year) if those formats preserve the semantic meaning of the data, but the underlying machine-readable data would follow the ISO format.
• State. For identification of a state, possession, military “state” of the United States of America, or a geographic directional, the Proposal would require the US Postal Service Abbreviations, as published in Appendix B of Postal Addressing Standards, Mailing Standards of the United States Postal Service. The Agencies mention that, compared to alternative numeric state codes, this proposed standard is both human- and machine-readable and is more widely used.
• Countries. For identification of countries, the Proposal would establish the country codes with the code(s) for subdivisions, as appropriate, as defined by the most recent version of Geopolitical Entities, Names, and Codes (GENC). GENC is the US government’s implementation of the ISO 3166 international country code standard and reflects requirements unique to US foreign policy. The Agencies mention that this standard is widely used, is incorporated into other data standards, and would provide consistency and interoperability of references to geopolitical entities.
• Currencies. For identification of currencies, the Proposal would establish the alphabetic currency code as defined by ISO 4217 Currency Codes. The Agencies mention that these internationally recognized codes are widely implemented (including in the derivatives market), used, and incorporated into many other data standards, and this standard would support interoperability, enable clarity, and reduce errors.

Data Transmission and Schema and Taxonomy Format Standards

The Proposal would set forth four properties for the data transmission and schema and taxonomy formats used by the Agencies. Specifically, the Agencies propose that the schema and taxonomy formats will, to the extent practicable:

• Render data fully searchable and machine-readable;
• Enable high-quality data through schemas, with accompanying metadata documented in machine-readable taxonomy or ontology models, that clearly define the semantic meaning of the data, as defined by the underlying regulatory information collection requirements, as appropriate;
• Ensure that a data element or data asset that exists to satisfy an underlying regulatory information collection requirement be consistently identified as such in associated machine-readable metadata; and
• Be nonproprietary or available under an open license.

The Proposal states that establishing the joint standards as a list of principles rather than any specific data transmission or schema formats will provide the Agencies with flexibility in selecting their data transmission or schema format data standards while promoting interoperability and allowing for adaptability to new technological developments. For example, the existing data transmission and schema formats associated with the Call Report, including XML and XBRL, satisfy these principles and would be compliant.

Takeaways

The Proposal relies in part on freely available standards, but some standards, including some of those maintained by ISO, are available only for a fee. While it is permissible for a regulator to incorporate such a standard, it generally must be made available for public review during the rulemaking process. The Proposal does not appear to provide a way for the public to access these materials during the comment period. Additionally, the Proposal does not specify the version of a standard that would be established as the joint standard under the FDTA. This type of dynamic incorporation by reference is prohibited.⁴

Comments to the Proposal can be submitted up until 60 days after the date of publication in the Federal Register. The Proposal notes that final standards established pursuant to this rulemaking will be adopted later for certain collections of information in separate rulemakings by the Agencies or through other actions taken by the Agencies. Regulated financial entities should begin to consider how they would comply with the proposed joint standard and identify any potential compliance problems with the standards identified in the Proposal.

¹ The federal regulators who jointly issued the Proposal include the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the National Credit Union Administration (NCUA), the Consumer Financial Protection Bureau (CFPB), the Federal Housing Finance Agency (FHFA), the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), and the Department of the Treasury (Treasury). The FDTA notes that it is also applicable to “any other primary financial regulatory agency designated by the [Treasury].” On May 3, 2024, the Secretary of the Treasury designated the CFTC as a covered agency under the FDTA.

² The FDTA does not specifically require Treasury and the CFTC to issue individual rules adopting data standards. Treasury and the CFTC may adopt data standards for their collections of information at their discretion.

³ E.g., Press Release, Derivatives Service Bureau Launches the Unique Product Identifier UPI Service (Oct. 16, 2023).

⁴ See Admin. Conf. of the U.S., Recommendation 2011-5, Incorporation by Reference, 77 Fed. Reg. 2257 (Jan. 17, 2012) (discussing 1 C.F.R. § 51.1(f)).