In March 2014, the House Financial Services Committee first embraced a proposal to exempt most companies from the obligation to file open-data financial statements with the U.S. Securities and Exchange Commission. The committee has voted to approve the proposal many times – sometimes as a stand-alone bill, but more often as part of larger legislative packages.
This happened again yesterday. But it doesn’t mean that open data reporting at the SEC is in immediate danger.
The proposal, originally introduced as the stand-alone Small Company Disclosure Simplification Act by Rep. Robert Hurt (R-VA), would direct the SEC to exempt all public companies with revenues at or below $250 millions from its requirement to file financial statements in the XBRL open data format. Rep. Hurt claimed the XBRL filing requirement costs companies too much – as much as $50,000 per year. A study by the non-profits XBRL US and the American Institute of CPAs shows that isn’t true. The median cost for small companies is $8,000.
The SEC is moving to further reduce companies’ costs by allowing them to file in the inline XBRL format, which uses a single submission that is both human- and machine-readable, rather than having to separately file the same information twice (once as a document and again as open data). And the agency is signaling a new openness to transforming more of its disclosures from old-fashioned, document-based forms into open data. In June, the CFA Institute published a new paper calling for the SEC to adopt open data “across all reports in their entirety.”
But the Small Company Disclosure Simplification Act would take the SEC’s reporting regime in the opposite direction. It would bar the SEC from requiring open data financial reports from more than half of public companies, for at least a period of three years – stalling progress.
In February, last time Rep. Hurt’s proposal was part of a legislative package bill approved by the Financial Services Committee, 194 members of the House voted for an amendment to dramatically reduce its scope – only 24 short of a majority. At that time, the House passed the package bill, but the Senate did not act on it.
Yesterday, the Small Company Disclosure Simplification Act was included as part of another package bill, committee Chairman Jeb Hensarling’s Financial CHOICE Act (HR 5983). The CHOICE Act’s main purpose is to reform the 2010 Dodd-Frank financial law. It is supported by Republicans and opposed by Democrats. The Financial Services Committee passed the Financial CHOICE Act yesterday on a party-line vote (with one Republican breaking ranks to oppose). No amendments to the package were proposed in the brief Committee markup.
Because the Financial CHOICE Act was not negotiated with the Senate Banking Committee leadership, it is not expected to become law before the end of the year, which also ends the 114th Congress. When the new Congress begins in 2017, with new members, all legislative work must start over. (Rep. Hurt himself has announced his retirement.)
It is unfortunate that the Financial Services Committee leadership chose to include Rep. Hurt’s proposal as part of the Financial CHOICE Act, but many members of the committee are interested in more constructive reforms. To minimize companies’ compliance costs, make financial filings easier for agencies to analyze, and bring electronic transparency to investors, Congress should instead direct the SEC to embrace open data, and phase out document-based reporting.
The Data Coalition opposes the Small Company Disclosure Simplification Act. Judging from Senate Banking Committee members’ bipartisan support for XBRL reporting at the SEC, and for open data in general, we believe Rep. Hurt’s proposal will fail if it ever reaches the Senate.
We will continue to work to educate members of Congress on the need to modernize financial regulatory reporting by transforming documents into open data.