Banking and Finance Law Daily Wrap Up, FINANCIAL TECHNOLOGY—ABA says pending federal financial data standard should use CUSIP, not FIGI, (Oct 23, 2024)

By Steven Melendez

The organization argues ABA-affiliated CUSIP codes, and not Bloomberg-linked FIGI, are the best securities identifiers for federal regulators.

The American Bankers Association (ABA) argues a new standard for federal financial data collection should use its Committee on Uniform Security Identification Procedures (CUSIP) codes and not Bloomberg-linked Financial Instrument Global Identifier (FIGI) codes to identify securities. The banking organization stated its position in a letter that was sent to nine federal financial regulators.

Under the Financial Data Transparency Act, the Treasury Department, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Reserve Board, Securities and Exchange Commission, Commodity Futures Commission, National Credit Union Administration, Federal Housing Finance Agency, and Consumer Financial Protection Bureau are required to adopt rules to make financial data openly accessible and searchable. In July, the FDIC approved a notice of proposed rulemaking that would designate a standard for identifying legal entities, as well as various other standards for fields in the data, including how to designate states, currencies, and financial instruments (see Banking and Finance Law Daily, July 31, 2024).

According to the ABA, in August, nine agencies suggested specific standards that designated FIGI as a securities identifier. The ABA argues the agencies misread the law in declining to consider CUSIP, which the agencies found is "proprietary and not available under open license." That requirement under the law actually only applies to the separate legal entity identifier, the ABA claims, and the agencies didn't properly consider other factors listed in the law for data standards.

"Importantly, Congress modified the application of these factors by the clause 'to the extent practicable,'" according to the ABA letter. "Therefore, the Agencies’ use of only one of the six general factors to exclude CUSIP without analyzing all of the proposed common identifiers against all six factors and considering the practicability of those factors is inconsistent with Congressional intent."

CUSIP codes were first developed in the 1960s by the ABA committee they're named for to identify individual securities and help reduce paperwork overloads and clerical errors in the financial industry. The codes are "fungible," the ABA argues, meaning that there is exactly one CUSIP per security. They've come to be used to identify securities from common stock to government bonds and mortgage-backed securities, widely used both in markets and reporting to government agencies, according to the ABA.

"The Agencies undertook no analysis of the role of CUSIP and FIGI in the markets and how market participants currently use identifiers within their operations, including the value of fungibility," the ABA argues, calling the decision to go with FIGI "arbitrary and capricious" under the Administrative Procedures Act.

Making FIGI a standard for reporting to federal agencies will require costly transitions for the many organizations that primarily use CUSIP, according to the ABA. CUSIP and FIGI codes don't work quite the same way, meaning there's not always a clean, one-to-one mapping from CUSIP to FIGI. FIGI allows for multiple codes per security, according to the ABA, with codes in some cases issued for each exchange a security is traded on, as well as composite codes by country, and codes issued by share class. That complexity is likely to lead to more errors, the organization warns.

The ABA also argues that knowing what security a FIGI code refers to requires more than openly available data and in some cases requires a paid subscription to Bloomberg data sources. With CUSIP, the group argues, data is available to cleanly distinguish similar securities, and the codes aren't as closely tied to one for-profit business.

Companies: American Bankers Association

RegulatoryActivity: BankingOperations CFPB DepositInsurance FinTech OversightInvestigations PrudentialRegulation SecuritiesDerivatives