Turning the Magic Eight Ball: FDTA’s proposed joint rules tell muni industry to ask again later
The Financial Data Transparency Act of 2022 aims to improve how financial information is organized, presented, and accessed by certain federal agencies. This act, passed by Congress, tasks the SEC with creating new uniform data reporting standards for issuers of municipal securities when filing financial information with the Municipal Securities Rulemaking Board. While the FDTA won’t add new disclosure requirements, it will change how financial information is formatted to be fully machine-readable and searchable.
The act will be implemented through a two-stage process. The first stage involves joint rulemaking by the designated agencies to establish uniform data standards for financial disclosures. The second stage will see separate agency-specific rulemaking. The SEC and other agencies published a notice of proposed rulemaking in August with proposed joint data standards open for public comment until October. The final rules establishing these standards are expected to be published in December.
One key aspect of the proposed joint rules is the use of Legal Entity Identifiers (LEI), specifically the ISO 17442-1:2020 standard managed by the Global Legal Entity Identifier Foundation. While obtaining an LEI may involve a fee, it’s not yet mandatory for reporting entities. The rules also outline common identifiers for different financial instruments and data formats to be used for effective data transmission.
Overall, the FDTA aims to streamline financial reporting and improve accessibility to this information in the municipal securities industry. By standardizing data formats and identifiers, the act hopes to make financial disclosures more transparent and easier to navigate for all stakeholders involved.