The Financial Transparency Act

The Financial Transparency Act is a bipartisan proposal in Congress to transform U.S. financial regulatory reporting from disconnected documents into open, searchable data.

The Financial Transparency Act, introduced as H.R. 1530 in the 115th Congress, is the first U.S. RegTech law.

The Financial Transparency Act will direct the eight major U.S. financial regulatory agencies to adopt consistent data fields and formats for the information they already collect from industry under securities, commodities, and banking laws. For information that existing laws already require them to publish, the Financial Transparency Act directs agencies to make such information available online as open data — electronically searchable, downloadable in bulk, and without license restrictions.

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What does the Financial Transparency Act do?

1. Data Standardization to Empower RegTech

Directs all eight major U.S. financial regulatory agencies to adopt consistent data standards for all of the information they collect from industry under existing securities, commodities, and banking laws. Each agency must adopt electronic fields and formats to replace document-based forms, following the lead of the U.S. Treasury Department where applicable.

Once financial regulatory reporting is expressed as standardized, open data instead of disconnected documents, RegTech applications will be empowered to republish, analyze, and automate.

2. Adopting the Legal Entity Identifier

Directs the Treasury Department to adopt data standards for concepts that reach across multiple regulators, and requires the regulators to follow Treasury’s instructions. Specifically mandates the adoption of the global Legal Entity Identifier (LEI) across all financial regulatory reporting regimes, to allow easy matching of filings from the same entity with multiple regulators.

Once every financial regulatory agency uses the LEI to identify the companies and firms it regulates, these entities will be automatically identifiable across separate reporting regimes – bringing instant transparency for markets and investors.

3. Open Data Publication

For information that existing laws already require to be published, requires agencies to make such information available online as open data — electronically searchable, downloadable in bulk, and without license restrictions.

Once this public information is consistently available as open data, information companies and investors will be able to harvest it to empower better decisions.

4. Fixing Data Reporting at the SEC

Requires the Securities and Exchange Commission, for the short term, to replace its current duplicative financial statement reporting requirement, in which public companies must submit each statement once as a document and again as data, with a single filing in the inline XBRL format. (On March 1, 2017, the commissioners of the SEC unanimously voted to propose rule changes to accomplish this.)

Once the SEC stops collecting every financial statement twice, companies and SEC staff will be able to focus on just one filing rather than comparing a document to a data file – reducing costs and improving data quality.

Why is the Financial Transparency Act needed?

Most U.S. financial regulators do not use data standards to organize the information they collect from regulated entities. Regulators use inconsistent identifier codes for entities, instruments, and transactions. Too many financial regulatory filings are still collected as documents – paper, PDF files, plain-text HTML – instead of using structured data formats like XML and XBRL.

This is a problem because when regulators collect and disclose information in, say, the ubiquitous Portable Document Format (PDF), they create substantially more work for those who want to use it – investors, markets, tech companies, and even the regulators’ own staff.

PDFs are nice because they look the same on your computer screen as they do when they’re printed out. But they lock valuable data away from the user, making large scale data analysis and parsing nearly impossible. It’s really easy to turn structured data into a PDF. It’s really hard to turn a PDF into structured data.

“When a government agency publishes its data and documents as PDFs, it makes us Open Government advocates and developers cringe, tear our hair out, and swear a little (just a little).” –Sunlight Foundation

Regulators’ failure to adopt consistent data fields and formats hurts regulated entities, too. If regulators specified predictable data standards, software could help public companies, banks, and financial firms automate their compliance tasks by pulling information automatically from internal systems. Without data standards, automation isn’t possible.

Data standards would make regulatory filings more transparent, useful, and efficient – for everyone who generates, collects, and uses the information they contain.

Regulatory filings should use consistent identifier codes for entities and other concepts, allowing firms to quantify exposure to an entity or product; markets to aggregate all data on a given entity; and regulators to avoid Madoff-style silo failures. Regulatory filings should also use structured data formats so that data flows into databases without manual re-entry. Structured data formats would allow filers to automate disclosure; markets to digest financial information cheaply, reducing filers’ costs of capital; and regulators to use analytics to find fraud, risk, and irregularities.

In the same way that the DATA Act of 2014 is transforming government spending, the Financial Transparency Act will transform financial regulatory reporting.


Financial Transparency Act resources

Text and summary of the Financial Transparency Act, introduced in the 115th Congress on March 15, 2017

How to stop the next Bernie Madoff, op-ed by Rep. Randy Hultgren in The Guardian, August 16, 2016

Technological change is coming to financial regulation, op-ed by Hudson Hollister, Data Coalition, and David LeDuc, Software and Information Industry Association, in The Hill, March 24, 2016

Text and summary of original Financial Transparency Act, introduced in the 114th Congress on May 20, 2015