Proposed FDTA rule is a bit of a snoozer. But that’s a good thing.

The proposed joint rules for the federal Financial Data Transparency Act draw boundaries but leave much to be decided–or not.

SEC Headquarters in Washington, D.C. Photo by Scott S. /Flickr Creative Commons

Welcome back, readers! Last time I promised a dive into state electric vehicle policy but I’m pushing that back because earlier this month, the SEC released its proposed joint rule for the Financial Data Transparency Act. I’ve read through it as well as some of the reaction so far and this newsletter will go over the key takeaways. I’ll return to EV policy and the high cost for consumers next time.

A quick recap: The FDTA passed unexpectedly in late 2022 and the broad goal is to improve access to government financial data by implementing machine readable filing standards for certain types of documents. Sounds nice, but it was controversial—especially among local government advocates—because there was a lot of concern about the potential extra cost and time it would take to comply. But the law was broadly written and left much to be decided by the nine implementing agencies.

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The joint rule, which is proposed by and would govern all nine agencies, is the first step in getting more clarity on the law’s scope. (I’ve linked to the SEC’s rule, which is nearly identical to the other agency joint rules.) After the joint rule is approved, then the agencies will propose and decide upon more industry-specific rules if necessary. For munis, the SEC will drive that ship. Full implementation is expected by 2027.

Four key takeaways

#1: Those looking for more specificity didn’t get much with this. But that’s not a bad thing.

Many folks expected the joint rule to tell us things like:

• The type (or types) of technology or coding language to be used for filing financial reports.

• The categories of data (taxonomies) that would have to be universally tagged. 

Instead, the rule sidesteps doing so and notes that a number of filing formats—Comma Separated Values (CSV), eXtensible Markup Language (XML), Java Script Object Notation (JSON) to name a few—are machine-readable and would comply with the law. The joint rule also declined to outline any taxonomies—at least for now.

“The FDTA does not explicitly require the establishment of specific taxonomies as joint standards and, therefore, it is not clear whether [doing so] is necessary to enable high quality data,” the rule said. “Therefore, while the Agencies considered establishing joint standards related to taxonomies, they are not proposing to do so.”

The approach allows broad flexibility for implementing agencies to create rules that minimize disruption. This is especially true for municipal issuers, which is an incredibly diverse category ranging from Mosquito Abatement Districts to the fifth largest economy in the world.

“Too much standardization can be problematic,” Lisa Washburn, Municipal Market Analytics managing director, recently wrote. “A single federal taxonomic or semantic standard would make municipal financial data at least appear more comparable to investors, but related implementation challenges and costs could be severe enough to chase a number of borrowers away from using the public debt markets, making public infrastructure financing that much more difficult.”

#2: The joint rule doesn’t require upfront costs.

The multiple formatting options is a huge break for governments which are spread thin on compliance and finding it more difficult and expensive to publish their annual financial reports.