Incorporated within the National Defense Authorization Act (NDAA) for Fiscal Year 2023, Congress introduced the Financial Data Transparency Act (FDTA) as a separate title. This legislation instructs federal financial regulatory bodies to collaboratively devise a set of standardized data requirements and mandates the Securities and Exchange Commission (SEC), to apply these standards to state and local issuers of debt in their financial reporting.
Background:
Throughout 2022, both houses of Congress deliberated on various versions of the FDTA. Ultimately, the 117th Congress included and passed a revised edition of the FDTA within the December 2022 NDAA. The final FDTA requiring the SEC to oversee the rulemaking process concerning the implementation of new data standards for the MSRB. The SEC, in collaboration with US Treasury has until 2024 to establish a set of standardized data requirements, and issuers must adhere to these standards by the end of 2026.
Key Provisions:
Data Standards (Subtitle A): This section instructs several federal financial regulators to jointly propose data standards open for public comment by June 2024, with finalization required by December 2024.
The FDTA mandates these joint standards to encompass:
A. Common identifiers for information collections reported to covered agencies or collected on behalf of the Council, including a nonproprietary legal entity identifier (LEI) available under an open license for all reporting entities. (This is an unfunded mandate)
B. Measures to:
(i) Render data fully searchable and machine-readable.
(ii) Enable high-quality data through schemas, with accompanying metadata documented in machine-readable taxonomy or ontology models, clearly defining the data’s semantic meaning as per underlying regulatory information collection requirements.
(iii) Ensure consistent identification of a data element or asset satisfying an underlying regulatory information collection requirement in associated machine-readable metadata.
(iv) Be nonproprietary or accessible under an open license.
(v) Incorporate standards developed and maintained by voluntary consensus standards bodies.
(vi) Align with and implement relevant accounting and reporting principles.
The FDTA mandates that the SEC to adopt the data standards submitted to the MSRB, ensuring compatibility with the aforementioned joint standards, to the extent feasible. The SEC is further required to finalize these rules within two years of the joint data standards’ finalization. Additionally, the SEC must consult with market participants and adjust regulatory requirements to minimize disruptions in the market.
The FDTA states that the SEC and MSRB can’t require any new information to be disclosed as a result of this Act.
