The Capital Markets subcommittee of the House Committee on Financial Services will hold a hearing Wednesday afternoon on reducing barriers to capital formation. But one of the seven legislative proposals on the subcommittee’s agenda would sacrifice an important open data policy over the SEC’s failure to properly implement it.
Rep. Robert Hurt (R-VA) intends to introduce a bill to require the Securities and Exchange Commission to exempt companies with annual revenue below $1 billion from the requirement to file financial statements in the XBRL structured data format. A brief description of Rep. Hurt’s bill can be found on page 4 of the subcommittee’s hearing memo.
Rep. Hurt’s bill reflects justified frustration with the SEC’s failure to deliver useful corporate financial data to investors. The SEC initially adopted the XBRL-based standard to democratize access to market information for investors, help agency investigators better locate indicators of fraud using Big Data analytics, and cut compliance costs for corporate disclosure through automation. However, since the SEC has failed to use this data in its own reviews, the agency hasn’t developed an internal incentive to demand quality data.
It’s a legitimate concern — but Rep. Hurt’s proposal would take a major step back from that hurdle instead of leaping over it. Antiquated bureaucratic practices don’t need to keep American businesses from harnessing the latest technology to compete successfully in the 21st century marketplace.
The Columbia Business School issued a report earlier this year, which showed that there is a “clear demand for timely, structured, machine-readable data” among investors. By providing access to quality XBRL data, the SEC could promote investment while achieving greater efficiencies for regulators and innovators alike.
Congress should absolutely press the SEC to explain why XBRL hasn’t worked. But simply banning XBRL is the wrong response.