Congress included the Financial Data Transparency Act (“FDTA”) as a title in the National Defense Authorization Act (“NDAA”) for FY2023. The statute instructs a group of federal financial regulators to develop a set of shared data standards, and then instructs select agencies (including the U.S. Securities and Exchange Commission or “SEC”) to apply those standards to themselves and other self-regulating organizations (including the Municipal Securities Rulemaking Board or “MSRB”).  

Background 

Throughout 2022, both chambers in Congress debated iterations of an FDTA.[i] The 117^th Congress ultimately included and passed a version of the FDTA in the NDAA passed in December 2022. The final version of the FDTA included changes requested to earlier drafts by various municipal market groups, including empowering the SEC to handle rulemaking around how new data standards would apply to the MSRB. Earlier drafts originally authorized the MSRB to develop these rules via its own internal rulemaking process. A cohort of financial regulators has through 2024 to set a series of data standards, and individual entities have until the end of 2026 to apply standards to individual entities.[ii]

• Data Standards: Subtitle A instructs a series of federal financial regulators to jointly propose data standards for open comment by June 2024, and to finalize such standards by December 2024.[iii] The FDTA requires the joint standards to (A) “include common identifiers for collections of information reported to covered agencies or collected on behalf of the Council, which shall include a common nonproprietary legal entity identifier that is available under an open license for all entities required to report to covered agencies” and (B) “to the extent practicable—
  • “(i) render data fully searchable and machine-readable;
  • “‘(ii) enable high quality data through schemas, with accompanying metadata documented in machine-readable taxonomy or ontology models, which clearly define the semantic meaning of the data, as defined by the underlying regulatory information collection requirements;
  • ‘‘(iii) ensure that a data element or data asset that exists to satisfy an underlying regulatory information collection requirement be consistently identified as such in associated machine-readable metadata;
  • ‘‘(iv) be nonproprietary or made available under an open license;
  • ‘‘(v) incorporate standards developed and maintained by voluntary consensus standards bodies; and
  • ‘‘(vi) use, be consistent with, and implement applicable accounting and reporting principles.”

• Application to the MSRB: Section 5823 instructs the SEC to adopt data standards submitted to the MSRB that “shall incorporate and ensure compatibility with (to the extent feasible)” the joint standards mentioned above. This section requires the SEC to finalize such rules within two years of the joint data standards being finalized. It also requires the SEC to consult with market participants and scale regulatory requirements to minimize market disruptions. 

• No New Disclosure Requirements: Section 5826 clarifies that nothing in the statute “shall be construed to require the [SEC], the [MSRB], or any national securities association to collect or make publicly available additional information under the provisions of law amended by this subtitle (or under any provision of law referenced in an amendment made by this subtitle), beyond information that was collected or made publicly available under any such provision, as of the day before the date of enactment of this Act.” 

Timeline 

Based on the deadlines laid out in the FDTA, we anticipate that regulators will roughly follow the timeline outlined below:  

Why We Care 

Many market participants remain concerned about the potential burdens the FDTA will place on the market, particularly for municipal issuers and borrowers. While many unknowns remain, a broad stroke approach in implementing the FDTA could overburden municipal issuers and borrowers who may already face limited resources and staff bandwidth. Any additional regulatory burden, particularly one without a clear benefit to the market, risks driving municipal issuers and borrowers from public markets to private placements. Bond lawyers should closely watch the implementation process and consider participating in regulator and NABL requests for input on this topic.

Our Stance 

NABL joined nearly every municipal market group in raising concerns about the potential regulatory burden to municipal issuers and borrowers posed by the FDTA prior to its enactment. We now seek to ensure that implementation of the FDTA finds a balanced approach that maximizes efficiencies offered to the market and minimizes disruptions posed to issuers, borrowers, and other market participants.  In the coming months and years, NABL expects to work with industry groups in the municipal market to provide comments in response to draft rules and other information to assist the SEC and MSRB in crafting rules applicable to the municipal market.

NABL FDTA Taskforce 

In 2023, NABL assembled an internal taskforce to direct organization-wide work relating to the FDTA. The following members compose the taskforce:

• Deanna Gregory — Seattle, WA (Taskforce Chair) 
• Carol McCoog — Portland, OR 
• Hardy Andrews — New Orleans, LA 
• Melissa López Rogers — Atlanta, GA and Orlando, FL 
• Hillary Phelps — Chicago, IL 
• Drew Slone — Dallas, TX 

Latest on FDTA 

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[i] House versions of the bill had been entitled Financial Transparency Act (“FTA”).

[ii] The FDTA applies data standard requirements to agencies beyond the SEC and MSRB. These agencies include the U.S. Department of Treasury; the Federal Deposit Insurance Corporation (“FDIC”); Office of the Office of the Comptroller of the Currency (“OCC”); Bureau of Consumer Financial Protection (“CFPB” or “BCFP”); the Federal Reserve Banks; the National Credit Union Administration (“NCUA”); and the Federal Housing Finance Agency (“FHFA”).

[iii] The group of federal financial regulators (“covered agencies” or “Council”) responsible for developing shared data standards are defined in the FDTA to include the Department of the Treasury; the Federal Reserve Board of Governors; the OCC; the CFPB; the SEC; the FDIC; the FHFA; the NCUA; and any other primary financial regulatory agency designated by the Secretary.