Legislation (the Financial Data Transparency Act) requiring financial regulatory agencies to adopt data standards for the information it collects from its regulated entities was included in the negotiated National Defense Authorization Act, passed last week. President Biden is expected to sign the bill into law sometime this week.

Of note is the requirement that the U.S. Securities and Exchange Commission issue data standards for information that municipal securities issuers provide to the Municipal Securities Rulemaking Board and that the information should be machine readable.  
 
While NASACT is generally supportive of efforts to achieve more accountability, transparency and efficiency in government finance, there will be costs associated with submitting the information to MSRB’s Electronic Municipal Market Access system to meet the data standards developed by the SEC. Under the legislation, SEC would have two years from enactment to develop the standards (along with and in consultation with other financial regulatory agencies) and four years to adopt the developed standards. 
 
The language states that “the SEC can scale the developed data standards to reduce any unjustified burden on smaller regulated entities and shall seek to minimize disruptive changes to persons affected by the rules.” The language further requires consultation with market participants in establishing the data standards.
 
The goal in passing this legislation is to eventually have financial information that is automated, searchable and machine-readable. Most regulated entities provide information to their regulator in paper, PDF, or plain-text HTML formats. The regulator generally does not employ data standards to structure the information. Data standards are intended to address the inconsistency in identifier codes for entities and transactions and to make regulatory filings machine-readable, thereby making information easier to access, analyze and compare. The regulated entities (in this case issuers) would likely use software to prepare their filings in a structured data format. The use of software introduces automation, which includes pulling in the relevant data from internal systems. It is unclear who would pay for the conversion or tag the relevant data. Would it be the state that would be required to purchase the software to make the conversion, or will MSRB possess an internal system that would convert the data?
 
While the language is vague giving the regulatory agency lots of autonomy in developing the standards, it does not require a specified taxonomy. Florida has undertaken a pilot project and has developed a taxonomy for Florida-specific reports using eXtensible business reporting language (XBRL) to structure the data. The project is just now moving into the implementation phase. California also had legislation to study whether the state should require its governments and agencies to provide financial documents in a more readily searchable format than PDF, but the legislation was vetoed by the governor. Michigan also recently undertook an initiative to explore the feasibility of requiring local government financial information in a machine-readable format. 
 
NASACT has been following transparency efforts for some time and hopes to work with the SEC as the implementation begins. NASACT will keep members apprised as the process moves forward.