The Future of Financial Data Standardization
This week’s Data Transparency 2013 conference covered a lot of territory around open data, but one area of particular focus was financial regulation. The event, held in Washington, D.C. and hosted by the Data Transparency Coalition, featured a plenary session and a breakout session on financial regulation. The most important takeaway from these sessions was that financial reporting standards have not reached the level of ubiquity required for many proposed data analyses and that transparency efforts would benefit immensely from wider adoption of these standards.
XBRL (eXtensible Business Reporting Language), an open format for business data exchange, dominated the conversation. XBRL advocates argue that widespread adoption of the machine-readable standard could promote transparency and efficiency in various areas of finance. Launched in 1999 and maintained by nonprofit consortium XBRL International, the standard has seen accelerating interest following the Global Financial Crisis. The Securities and Exchange Commission (SEC) has been a flagship user of XBRL for the filings it collects, and the conference included considerable discussion about promoting the adoption of the format in other agencies and abroad.
Craig M. Lewis, the SEC’s Director of Economic and Risk Analytics, joined Linda Powell, Chief Business Officer of the Treasury Department’s Office of Financial Research (OFR), to discuss open data and financial regulation in the plenary session. The two discussed their agencies’ open data agendas, including their support of Legal Entity Identifiers (LEI), unique numbers that can be used to identify entities that participate in financial transactions. Powell stressed OFR’s role in investigating opportunities for new standards, particularly in the mortgage and mortgage securitization industries. She also argued that, in addition to the time- and cost-saving benefits of standardization, standards enable more straightforward evaluation of risk among financial entities. Lewis echoed the latter point, adding that one of his department’s goals is to produce rank-ordered risk profiles of these entities to aid in prioritizing SEC investigations; broad adoption of LEIs and other standards would enable such analyses.
Similar topics arose in the financial regulation breakout session led by Alfred P. Sloan Foundation Program Director Daniel Goroff. Goroff solicited suggestions from the audience for improving transparency in financial regulation, many of which concerned increasing XBRL use in the SEC and elsewhere. Chris Taggart, co-founder and CEO of open corporate database OpenCorporates, stressed the need for relationship data on corporate parents and subsidiaries, which he said the LEI system does not adequately support. Goroff agreed and noted the importance of a strong first-mover—possibly the SEC—in mandating the collection of such data.
In addition to assigning LEIs to financial entities, several commentators proposed efforts to attach unique identifiers to classes of financial instruments. A representative from Bloomberg argued that the financial media firm’s Open Symbology group has already achieved comprehensive instrument identification, although the debate on this topic remained unsettled at the end of the session.
Other participants argued that expanded and standardized data collection is not sufficient to achieve financial reporting transparency. Suzanne Morsfield, Director of the Center for Excellence in Accounting and Security Analysis at the Columbia Business School, brought up the need for quality guarantees on XBRL data, which often suffers from errors when not comprehensively audited.
Although XBRL has existed for over a decade, the pursuit of transparency in the wake of the Global Financial Crisis and the increasing interest in machine-readable data throughout government have raised discussions of financial data regulation to a fever pitch.
XBRL has a broad range of support from financial industry stakeholders, but it still needs more support among policymakers before it will be widely adopted. To the extent that agencies have the power to format more of their data in XBRL and offer data quality auditing, they should. In cases where agencies do not have sufficient authority or incentive, Congress should mandate broader adoption of XBRL and other financial data standards.