Financial regulatory data gathered through regulatory reporting involves the application of emerging technology and is often supported by the use of open data standards. Relative to other developed countries, the U.S. federal government has not kept up with advances for data governance and management applied in the financial sector among entities and institutions that report to the regulators. The fragmentation of the U.S. financial regulatory reporting system, reliance on document-based reports, and provision of information in static documents limits the ability of regulators and the American public to benefit from this information. Relatively modest changes to the data management framework offer potential for substantial benefits to the American people, regulated entities, and regulators by reducing administrative burden and increasing the value of the available information.
Broad existing legislation and statutes are understandably improving data quality, expanding the use of data standards, and encouraging new analytical capabilities. But financial regulatory reporting remains fragmented, duplicative, and unstructured. Proposals to modernize the financial regulatory reporting system to require standardized, machine-readable data promise to foster an environment for technology to improve the efficiency of the financial sector and regulatory reporting. These low-cost capabilities are much-needed to ensure the financial infrastructure in the United States leads as a global model for transparency, accountability, and open data.
Informed by the dialogues of the Data Foundation’s Open Data Standards Task Force, the following recommendations highlight areas where the federal government can take steps in 2021 to immediately institute improvements to financial regulatory data. In doing so, the following eight recommendations prioritize meaningful improvements for data capacity that address longstanding challenges, while building on productive existing capabilities:
- Promote Effective Implementation of Broad National Data Laws. The Executive Branch must prioritize resources and strategies for effectively implementing far-ranging national data laws, like the Foundations for Evidence-Based Policymaking Act of 2018, the OPEN Government Data Act, the Data Accountability and Transparency Act of 2014, and the Grant Reporting Efficiency and Agreements Transparency Act. These important legal authorities provided a framework for using high-quality data across a host of policy domains, including financial services. Notably, the legal authorities established over the last decade promote the use of applicable data standards, establish new leadership capabilities like chief data officers, and promote mechanisms for sound data management (i.e. learning agendas, data inventories, and data governance frameworks). Effectively implementing these laws requires agencies to allocate appropriate resources, people and funding, and for senior leaders in agencies to prioritize effective implementation. While these broad authorities merit continued emphasis, the Office of Management and Budget and Congress can also clarify the applicability to financial regulatory reporting.
- Identify and Address Technology Gaps. Federal agencies, with participation from agency Chief Information Officers and Chief Data Officers, should conduct an inventory of technology needs to identify gaps in current approaches. Of note, agencies should consider potential applications of privacy-preserving techniques and emerging technologies (e.g., multiparty computation) that can promote secure data linkage and analysis, and where such applications may be efficiently and easily adopted to improve quality, reliability, and accessibility of data. Financial regulatory agencies should pilot test such technologies and begin to identify areas where such approaches can and should be adopted at scale.
- Prioritize data literacy training for agency staff. The increasing focus of data as a strategic asset among the federal data community in agencies should be paired with improved training on data literacy for senior managers and officials to promote ongoing use and support for future initiatives. Data literacy training can be conducted at a low cost with a tremendous benefit for data users, researchers, and stakeholders. Financial regulatory agencies, among others, should allocate resources from training budgets to support improving data literacy and analytics capabilities across the agencies.
- Support data sharing among Financial Stability Oversight Council (FSOC) member agencies. Compliance reporting and oversight frameworks are currently weighed down with duplicative, siloed data feeds often submitted in PDF format, resulting in information gaps, costly time lapses across agencies, high compliance burdens, and a loss of information integrity important to financial regulatory oversight. Existing tools like the Interagency Data Inventory maintained by the Office of Financial Research at the Treasury Department, and the Federal Deposit Insurance Commission’s beta site for Data Tools could be leveraged to improve data access, inventories, and use while protecting sensitive data and ensuring data integrity.
- Improve data sharing between U.S. financial regulatory agencies and statistical agencies. Administrative data collected for financial regulatory purposes should be more readily shared with and used by federal statistical agencies like the Bureau of Economic Analysis and the Bureau of Labor Statistics. Administrative data allow for the creation, improvement, and expansion of statistical products without the need to increase public burden through survey-based data collection methods. For example, information collected by FinCen on certain U.S. real estate transactions by foreign residents could prove useful to improve the direct investment measures included in the United States International Transaction Accounts, which are produced by BEA. Under the Foundations for Evidence-Based Policymaking Act’s Title III, statistical agencies are granted a presumption of access to administrative records; OMB should prioritize issuing a final rule to enable this statutory authority to be implemented in the federal government for research and statistical activities.
- Encourage regular public-private exchanges with banking and financial institutions to increase the likelihood of synchronous technology, data standards, and reporting updates. Private sector development and use of regulatory and financial technologies (regtech and fintech, respectively) outpaces the federal government by a few iterations. Drawing from the public forum format used for feedback for the drafting of the Federal Data Strategy, FSOC agencies should facilitate regular public exchanges between public and private financial data leaders to identify needs and outline solutions that rely on technology currently in use by the private sector.
- Employ the use of identifiers and validation data tools, that carry neither licensing restrictions nor fees, to mitigate risks, reduce financial cybercrime, and improve data blending across agencies. The growth of the digital economy has increased the need to improve data management, increase identity verifications, and validate entities across international borders. As an example, international nonproprietary legal entity identifiers, like the LEI, add a layer of unique verification to identifying legal entities and ownership structures globally. Nonproprietary identifiers and tools, such as those offered by the LEI system, can be useful for statistical agencies, as well. For example, they can help with survey or administrative data validation, facilitate data blending across agencies, and help with business register/survey frame maintenance and updates, making data more reliable and reducing burden for industry and regulators.
- Amplify efforts in the federal government that fortify supply chain traceability, visibility, and reliability. Policymakers, investors, investigators, and the general public should be able to rely on clear and transparent information supply chains. Whether the consumer is the federal government, an investor, or the general public, available data standards and mapping identifiers could enable a network of rapid connections to generate globally visible business and trade supply chains.
In 2021, the administration will have new opportunities to ensure data capabilities are clear, coherent, and effective for meeting the needs of the American public, regulated entities, and regulators. Modest improvements to the existing infrastructure for financial data coupled with increased attention to capacity-building efforts can meaningfully improve the information available for investors, oversight officials, and the public writ large.
