First FDTA proposal just weeks away

Cities, states and towns will get their first, long-awaited glimpse of a controversial new data standards law in a few weeks.

The Securities and Exchange Commission and federal agencies are set to release a joint Notice for Comment by June 28 for the Financial Data Transparency Act of 2022. The notice marks the first of a multi-stage process that ultimately calls for municipal market issuers to report their financial data in a digitized, machine-readable format, as is currently required in corporate disclosure.

The upcoming notice will outline proposed data standards and so-called legal entity identifiers and ask market participants for comment.

It’s critical that municipal market participants carefully review the multi-agency rule proposal and “flag [something] that could create issues for the market,” said Dave Sanchez, director of the Office of Municipal Securities at the Securities and Exchange Commission.

The municipal market is rarely “top of mind” to regulators and federal agencies, Sanchez said Saturday during the Government Finance Officers Association’s annual meeting in comments to the GFOA’s Debt Committee. “So it’s been important to [the Office of Municipal Securities] to be heavily involved all the way through,” he said. “This is very sprawling, so not paying attention and not flagging issues of concern to the municipal market would be the biggest potential mistake.”

The notice may be open-ended with more questions than answers, said Emily Brock, the GFOA’s federal liaison, who talked about the looming deadline during a legislative update to the committee.

“Our section will likely be a lot of questions,” like about how issuers create data, Brock said. “We recommend that as the notice of comment goes out, you and your accounting [firms] look at and assess critically what your organization is able to produce to be in compliance with the FDTA.”

Sanchez said the second phase will be “where the rubber hits the road,” by including specific requirements for local governments. The issue of cost, which has worried local governments, likely will not become clear until later in the rulemaking process.

A few studies on the proposal have been released, including one from Florida and another from Michigan, which reviews the feasibility of transitioning to an XBRL format for the state’s nearly 3,000 local entities.

The Michigan report recommends not implementing XBRL for a variety of reasons, including that the state’s “current reporting processes has effectively accomplished data standardization” and that limited staff would be “one of the most challenging, yet critical, factors in the project’s success.”

“Once the notice of comments comes out, we can capitalize on the information in those studies,” Brock said.

Final joint rulemaking is set to be released in December. The SEC will likely publish proposed muni market specific standards in 2026, followed by the MSRB’s proposal and call for comments, according to a Ballard Spahr paper on the FDTA. By the end of 2026, the SEC will issue its final rule for municipal market standards with the effective dates coming in 2027 or after.