The Financial Data Transparency Act (FDTA), enacted in December 2022, is a significant legislative effort aimed at modernizing the landscape of municipal securities disclosures. Its main objective is to transition existing disclosure formats into a machine-readable structure, thereby streamlining access to vital financial data. However, since its inception, the act has faced substantial pushback from various entities, particularly from the American Bankers Association (ABA), which is vehemently contesting the proposed regulatory adjustments to financial security identifiers.
The crux of the controversy lies in the recent proposal to replace the long-standing CUSIP (Committee on Uniform Securities Identification Procedures) identification system with Bloomberg’s Financial Instrument Global Identifier (FIGI). CUSIP has operated as a standard nine-digit alphanumeric identifier for financial securities, including municipal bonds, for decades. The push for FIGI reflects a broader ambition to standardize identifiers across global markets, aiming for a more efficient and coherent structure.
The American Bankers Association asserts that the Securities and Exchange Commission (SEC) and other federal bodies have overstepped their regulatory boundaries in pushing for these changes. In letters sent to the SEC on September 3, the ABA contended that not only has the FDTA’s mandate been disregarded, but also that the procedural aspects outlined by the Administrative Procedure Act have been ignored. They argue that the proposed rule is both arbitrary and capricious, failing to take into account the far-reaching implications of such a transition.
Adding to their resistance, the ABA has requested a 60-day extension on the comment period, which is currently set to close on October 21. This extension would ostensibly allow them more time to gather evidence that highlights the potential complications and costs involved in this significant shift from CUSIP to FIGI.
The proposed shift to FIGI has sparked an outcry among various stakeholders in the municipal market, from cities and states to seasoned financial issuers. These groups express legitimate concerns regarding the complexity and financial strain that may result from adapting to the new machine-readable standards. The benefits touted by the SEC—such as real-time availability and flexibility—are seen as overshadowed by the potential confusion and detrimental effects on administrative processes.
Moreover, it is particularly alarming that the SEC’s contentions suggest that both identifiers can serve as interchangeable, a perspective the ABA vehemently disputes. The ABA’s assertion posits that while FIGI may offer a free and open system, it restricts access to essential data, much of which remains locked behind the Bloomberg terminal’s paywall.
The Call for Clarity and Compliance
The ABA’s push for a reconsideration of the current FDTA proposal centers around the argument that the FDTA should adhere to Congressional intent. SEC Commissioner Hester Peirce has publicly acknowledged the relevance of this debate within her support for the FDTA, pointing out lingering questions about the application of the mandate to financial instruments and whether FIGI meets legitimate standards for designation under FDTA protocols.
With the SEC’s deadline for finalizing the regulations projected for the end of 2026, the pressure is mounting on federal agencies to address the concerns raised by the ABA. The timing is crucial, as the implications of their decisions will ripple through the municipal securities market for years to come, not only affecting current administrative structures but also shaping the future of data transparency in financial sectors.
The ABA’s ultimatum hints at possible legal repercussions should the SEC fail to reconsider its approach. An email from an ABA spokesperson articulated a readiness to exhaust all available options if their requests for a new proposal were not heeded. This situation reflects a precarious moment in the relationship between regulatory bodies and the financial sector.
As discussions continue, it remains to be seen how the FDTA—and its contentious identifier proposals—will evolve. The stakes are high, with far-reaching implications for financial data accessibility and the regulatory landscape as a whole. Whether the SEC will adapt its approach in response to the criticisms will be crucial in shaping the future of municipal securities and their accessibility to investors and the public at large.