TechTalk Blog: Data Transparency Transformation - Build Out of LEI & Connection to XBRL

By David Colgren posted 03-30-2015 02:05 PM

  

 Dear TSP Committee Members:

Great speech last week from Richard Berner of the US Treasury Office of Financial Reporting at the Financial Regulation Summit: Data Transparency Transformation in Washington, DC on Tuesday, March 24, 2015.

In his speech Richard Berner spoke about the need to create global data standards that link analysis, data and policy tools to manage systematic risk in the financial services sector to better protect investors and taxpayers.

During the 2007 global financial crisis regulators could not determine the risk exposure between institutions, financial instruments and transactions because these common data reporting standards creating lack transparency and accountability. This crisis created uncertainty in the capital markets and frozen investments because we did not know which instruments were toxic and which were clean. 

Now with the global build-out of legal entity identifiers (structured data) by US Treasury OFR – financial institutions around the world are beginning to use this identifier (LEI) and US Treasury OFR is now working aggressively to build out identifiers for both financial instruments and financial transactions using a global structured data format.  The CFTC, US SEC and Federal Reserve are all at various stages of development using LEI – most directly in the securities-based swaps marketplace where transparency and accountability is lacking to protect investors. Linking to LEI can provide transparency.

Two weeks ago, the Federal Reserve Board announced that they would be using LEI for certain regulatory reporting forms. Meanwhile, International organizations like IOSCO are taking LEI to a new global level across the capital markets with other banking and securities regulators so we can have greater interoperability between regulators using structured data.

During his speech – Richard also discussed XBRL and its benefits to the nation’s banking regulatory operation over the years by reducing regulatory reporting burdens.  During his speech he called about the XBRL Community to work to link XBRL data to the global LEI standard so we can link specific financial data of companies to a specific legal entity identifier.  In the coming years we would also be able to link financial instrument identification and transaction identification to the XBRL data standard for greater transparency and accountability to the capital markets driving our global economic growth and the creation of new jobs.

What does this mean for management accountants?

As LEI build-out moves across the capital markets – possibly from the financial services sector to the corporate reporting sector -- smaller and smaller companies will be asked to use this LEI format for company identification. And this format will help companies reduce regulatory burden and promote greater transparency and accountability driving capital markets investment. The management accountant will play an increasing role in data analytics for benchmarking or understanding risk of organizations connected to their business operation.

Here in New York City if a small business wants to set up a restaurant they have to send information about their company to more than 10 different city agencies because there is no common data structure for company identification. With one company identifier (LEI) – a form could be created once and used by all city agencies can use. This standardization – even on the smallest level - will help companies reduce regulatory reporting burdens.

Stay tuned as this unfolds.

 

 

 



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04-01-2015 11:29 AM

David, thanks for this update. Linking financial information in XBRL format to a legal entity identifier will provide even more value to structured, digital disclosure.

03-31-2015 12:58 PM

David,
I really like the "global data standards" promotion. Likewise the Reduction in regulatory reporting burden in the banking sector needs to be highlighted so that the knee-jerk reactions, while understandable, given other regulatory regimes, can be properly addressed to move toward more efficient and effective reporting. This kind of reporting benefits all of us, not just government regulatory agencies. Transparency, comparability, access - I love it! Let's hope the execution matches the expectations.