Standards May Pose a Challenge as Regulators Seek Data Interoperability

Thousands of data fields, thousands of financial firms, nine regulatory agencies … the push toward a common thread of communications across financial services would be, will be and already is a monumental undertaking.

Regulators have requested comments on a proposed rulemaking that would set up data standards for financial information collected, and submitted, to nine agencies — including the Federal Reserve, the Consumer Financial Protection Bureau (CFPB) and others.

Standards and the interoperability of that data, the agencies note in the proposed rule, and in news releases about the endeavor, would make it easier for financial firms to file reports across agencies.

Getting there may be a challenge, as some agencies have proposed standards, and others will, as we reported last week.

Comments are due within 60 days — and we’d note that, if recent commentary periods on data collection and operational changes proposed by the likes of the CFPB are any indication, there’s bound to be some debate on just how to get to that standardization.

The proposal has been tied to the Financial Data Transparency Act of 2022 (FDTA). And as the proposal noted, the “the FDTA also directs most of the Agencies to issue individual rules adopting applicable joint standards for certain collections of information under their respective purview.”

Looking Toward the End of 2024

The legislation mandates that the agencies must issue the final joint rule within two years after December 2023 — so the proverbial clock is ticking, with about four and a half months left to get things in place. In terms of the data itself, the “joint standards” must include “common identifiers, requires the joint standards to include common identifiers, including a common nonproprietary legal entity identifier that is available under an open license for all entities required to report to the agencies.” The data must also be machine readable. The proposed rule-making and the FDTA also posit new formatting for date and time-related data, country codes and other identifiers.

The proposal notes that the agencies invite comment on “whether to establish a joint standard for taxonomies based on certain properties, and if so, the properties that should be set forth in the joint standard.” In other words, there will be some back and forth, and public input, on what the standards entail, what data must be used now, how to apply those standards retroactively … and perhaps, what data must be used in the future.

Open data standards, the formatting and the actual necessary information itself necessitate changes to certain firms’ operating practices — where they’ve been standardizing data in current practice but may have to embrace new processes to get there.

It’s not a perfect analogue, but as reported here last month, buy now, pay later (BNPL) firms have asked for more clarity and time (as long as five months) to prepare for new rules governing consumer facing practices and communications. The business models of these firms — and indeed of the firms that report to the aforementioned nine regulatory agencies — are complex, to say the least. And where complexity is a given, change will take time.