Buried within the National Defense Authorization Act
(“NDAA”) for Fiscal Year 2023 is an important title that
will require the US Treasury Department (the “Treasury”)
to set, and other federal regulators to implement, data reporting
standards for the financial entities that they regulate. As a
result of the enactment of Title LVII, the Financial Data
Transparency Act of 2022, a new framework of rules will need to be
promulgated over the next two years that will affect the form and
type of data that regulated financial entities must submit to
federal regulators. In this Legal Update, we discuss the standards
that will be created and what they mean for many regulated
financial entities.

Background

For years, federal consumer and financial regulators have
collected data from regulated entities pursuant to various
authorities. The data sets collected by these regulatory agencies
are numerous and varied, numbering in the hundreds. Some of the
data collection and reporting requirements are standardized across
the regulatory agencies, while other information is not
standardized in the way it is collected or made available to users.
For example, the Federal Reserve Board (the “Fed”)
publishes an extensive data dictionary on how it collects
standardized data online. In contrast, bank merger applications
and resolution plans are submitted in a narrative format that
defies standardization or machine readability.

Standards That Will Be Developed

Enacted on December 23, 2022, the Financial Data Transparency
Act (the “Act”) requires the Treasury and seven other
federal regulators to jointly propose and implement rules for data
standards for information reported to the regulators by financial
entities under their jurisdiction.¹ The regulators are
the Treasury, the Federal Insurance Deposit Corporation
(“FDIC”), the Office of the Comptroller of the Currency
(“OCC”), the Consumer Financial Protection Bureau
(“CFPB”), the Federal Reserve (“Fed”), the
National Credit Union Administration (“NCUA”), the
Federal Housing Finance Agency (“FHFA”), and the
Securities and Exchange Commission (“SEC”).²
These regulators must issue the proposed rules for public comment
by June 2024 and finalize the rules by December 2024, although
another two years will be allowed for implementation.

Under the Financial Data Transparency Act, the Treasury must
coordinate with the other regulators to develop the data standards.
The standards must include common identifiers for the information
reported to the covered regulators, including a common, open
license, nonproprietary legal entity identifier for all entities
reporting data to the regulators.³ The standards also
must, to the extent practicable, satisfy the following
criteria.

• The standards must render collected data fully searchable and
  machine-readable.
• The standards must enable high quality data through schemas
  that clearly define the meaning of the data, with any associated
  metadata logged in machine-readable format.
• Data collected to satisfy a regulatory reporting requirement
  must be consistently identified as such in the associated
  machine-readable metadata.
• The standards must be nonproprietary or made available under an
  open license.
• The standards must incorporate standards developed and
  maintained by voluntary consensus standards bodies.
• The standards must use, be consistent with, and implement
  applicable accounting and reporting principles.

The finalized data standards will be adopted by each regulator
through the rulemaking process and, presumably, implemented in the
reporting requirements of each regulator through adjustments to
their existing reporting requirements. Once the reporting
requirements are updated by a regulator, all data collected from
financial entities subject to its jurisdiction will be submitted
pursuant to the standards, to the extent feasible. This must be
done within two years of when the data standards are finalized by
the Treasury.

The Act has additional requirements applicable to the publishing
of collected and reported data. Specifically, all public data that
is published by the regulators must be made available as an open
government data asset, freely available for download, rendered in a
human-readable format, and accessible via an application
programming interface where appropriate. Further, the Act makes
clear that nothing in it should be construed as requiring the
Treasury or other regulators to collect or make publicly available
additional information beyond the requirements in effect at the
time of the Act’s enactment.

Conclusion

Regulated financial entities should begin to consider how they
would comply with the new data standards and identify any potential
compliance problems with the proposed rules issued by the
regulators. Regulators collect hundreds of different information
sets from regulated financial entities, and each set will need to
conform to the new data standards. The complexity of this task
invariably means that without thoughtful comments by the regulated
financial entities who are best equipped to assess the
effectiveness and efficiency of the proposed rules, there is a
higher risk that the final rules will contain compliance
challenges.

Additionally, regulated financial entities will almost certainly
be required to submit legal entity identifier information as a
result of the new data standards. The FDIC recently noted that a
significant number of banks that have a legal entity identifier are
not reporting it on their Call Report and reminded banks that they
must include the legal entity identifier if they already have
one.⁴ This focus on legal entity identifiers will only
continue, and regulated financial entities should consider
familiarizing themselves with the registration and maintenance
process.

Footnotes

1. National Defense Authorization Act for Fiscal Year
2023, Pub. L. 117-263, tit. LVIII (2022), https://www.congress.gov/bill/117th-congress/house-bill/7776.

2. The Financial Data Transparency Act includes
additional provisions for the SEC that reflect nuances of the
securities markets and are beyond the scope of this Legal Update.
Furthermore, the Act notes that it is also applicable to “any
other primary financial regulatory agency designated by the
Secretary.” However, it does not appear any additional
agencies have been designated for inclusion at this
time.

3. See our recent article on legal entity identifiers: https://www.mayerbrown.com/en/perspectives-events/publications/2022/11/the-abcs-of-leis-and-what-you-may-not-know.

4. FDIC, FIL-3-2022 (Jan. 7, 2022).

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