New Proposal Includes XBRL Exemption – and Major Setback for Open Data
UPDATE: On September 16, 2014, H.R. 5405 passed the House of Representatives by a vote of 320 to 102.
A major setback for open government data may be on the agenda for the U.S. House of Representatives.
Despite the opposition of the tech industry, Rep Robert Hurt’s proposal to direct the Securities and Exchange Commission (SEC) to stop collecting financial data from most public companies has been included as part of a new legislative package–a new bill introduced on Monday, Sept. 8, by Rep. Mike Fitzpatrick and a number of other Republican members.
The new bill, H.R. 5405, brings together ten previous bills into a single one. One of those ten is Rep. Hurt’s previous proposal, included in the new bill verbatim. Judging from the urgency of the current House schedule, H.R. 5405 could see action by the House of Representatives as early as next week.
Nine out of the ten bills included in H.R. 5405 have already been approved, as stand-alone bills, by bipartisan majorities in either the Financial Services Committee or the full House. (The Financial Services Committee passed Rep. Hurt’s original bill in March 2014.) So it seems clear that the backers of H.R. 5405 want to craft a bill that will pass the House easily, without serious opposition.
H.R. 5405’s introduction conveys that the bill is non-controversial by stating three innocuous purposes:
To make technical corrections to the Dodd-Frank Wall Street Reform and Consumer Protection Act, to enhance the ability of small and emerging growth companies to access capital through public and private markets, to reduce regulatory burdens …
But H.R. 5405, if approved by the House, introduced and passed in the Senate, and signed into law by President Obama, will dramatically restrict the availability of searchable corporate financial data to investors–and to the tech companies building investment tools.
Supporters of open data in financial regulatory reporting will remember that the SEC collects an open data version of each financial statement in the eXtensible Business Reporting Language (XBRL) structured data format, alongside the old-fashioned plain-text version, from every public company registered in the United States. Investors, markets, and the public can use the XBRL version of each financial statement to create a fully searchable data set of all U.S. public company databases. XBRL data supports free tools for investors like RankandFiled.com. It is also used by infomediaries like Morningstar and Thomson Reuters to enrich the information they deliver to paying clients.
Rep. Hurt’s proposal, now incorporated into H.R. 5405, would direct the SEC to exempt all public companies with revenues below $250 million–a majority of public companies–from the obligation to file an open data version. Supporters of the exemption claim that XBRL-formatted financial statements cost “tens of thousands of dollars” to create, but Financial Executive International found a median annual cost of $2,000 for small companies (page 19), and some providers offer XBRL preparation services at even lower prices.
Supporters of the exemption had one valid point last spring: at that time, the SEC had not taken any steps to ensure the quality of the XBRL filings. Without assurance that the open data versions of financial statements were reliable, investors were reluctant to use them, and relied on the plain-text versions instead. But last summer, after a year of advocacy from open data allies in Congress, the SEC took its first public steps toward enforcing better data quality. As quality improves, investors and the tech companies serving them will make more use of the open data financial statements.
The companies themselves will benefit, too. Open, structured data delivers information more efficiently to the markets, which makes it easier for smaller companies to find eager investors and brings down their capital costs.
H.R. 5405 would cut off such progress by forcing the SEC to use documents, not open data, to collect corporate financial information.
Fans of open data should make their opposition to this portion of H.R. 5405 known.
One way to do that is to contact your representative and contact House leadership.
Another way is to join our Coalition at Data Transparency 2014 later this month. Our open data policy conference will demonstrate broad public and industry support for the open data transformation–and prevent that transformation from being halted by measures like this one.