Banking and Finance Law Daily Wrap Up, FINANCIAL TECHNOLOGY—ABA urges reconsideration of proposed security identifier to implement Financial Data Transparency Act, (Sep 5, 2024)

By Justin Marcus Smith, J.D.

The ABA contends that the federal agencies ran afoul of the FDTA and Administrative Procedure Act requirements in proposing to designate “FIGI” as the common financial instruments identifier.

The American Bankers Association (ABA) is urging the Securities and Exchange Commission and eight other federal regulatory agencies in the financial services sphere to reconsider the proposed establishment of Bloomberg LP’s Financial Instrument Global Identifier (FIGI) as the common financial instruments identifier for implementation of the Financial Data Transparency Act (FDTA). The ABA said the agencies’ proposed rulemaking does not comport with the text or intent of the FDTA with respect to FIGI; did not give enough time for public comment from the full range of existing CUSIP (Committee on Uniform Security Identification Procedures) users; and violates the Administrative Procedure Act (APA) requirement that the agencies conduct a proper cost-benefit analysis for FIGI adoption. The ABA letter was critical that FIGI is not presently deemed to be a suitable replacement for CUSIP, especially as to fungibility. The ABA called for reconsideration of the proposed rulemaking and a longer notice-and-comment period.

Background. In July 2024, the Federal Deposit Insurance Corporation Board of Directors approved a notice of proposed rulemaking (NPR) to establish data standards promoting the interoperability of financial regulatory data across the federal financial and housing agencies as required by the FDTA (see Banking and Finance Law Daily, July 31, 2024).

The FDTA requires the Treasury Department, Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, Federal Reserve Board, Securities and Exchange Commission, National Credit Union Administration, Federal Housing Finance Agency, and Consumer Financial Protection Bureau (collectively, the agencies) to adopt rules making financial agency data collection and dispersion open source and electronically searchable and downloadable in bulk without license restrictions.

ABA objections. On Sept. 3, 2024, the ABA addressed a letter to the agencies objecting to the proposed establishment of Bloomberg LP’s FIGI as the common financial instruments identifier. The letter urged the agencies to reconsider that specific choice. The ABA addressed the letter to Vanessa A. Countryman, Secretary of the Securities and Exchange Commission and carbon-copied the other agencies. On Sept. 4, 2024, the ABA further publicized and explained its objections to the proposed rulemaking and FIGI in an ABA Banking Journalarticle.

The ABA said the agencies acted outside the FDTA as well as arbitrarily and capriciously under the Administrative Procedure Act (APA) in proposing to designate FIGI as the common financial instruments identifier. The ABA said the agencies:

1. overlooked the existing CUSIP identifier;

2. ignored the disruptiveness of adopting FIGI; and

3. failed to engage in the APA-required cost-benefit analysis.

CUSIP. The ABA reminded that CUSIP identifiers and closely-related ISIN (International Securities Identification Number) identifiers have, for nearly 60 years, “been and continue to be the standards for uniquely identifying financial instruments across many functions, including financial reporting.” Specific to reporting, the letter continued that CUSIP identifiers are presently “the required means of identifying financial instruments for nearly every financial reporting form collected by the Agencies[.]” The ABA noted how CUSIP is also the “underlying identifier for a myriad of Agency operations including Treasury issuances, Treasury Auctions, and [Mortgage-Backed Securities] CUSIP Aggregation to name just a few.” The ABA concluded here that no other identifier compares to CUSIP and the closely related ISIN in “coverage and utility.”

Flawed FDTA reading. The ABA letter continued that the proposed rulemaking did not comport with the plain text of the FDTA and Congressional intent. Specifically, the ABA argued that the agencies misconstrued the FDTA by imposing a non-existent requirement that all common identifiers be “nonproprietary” and available under “open license.” The ABA contended the FDTA only imposed those two conditions with respect to “legal entity identifiers” (LEIs). The ABA cited that the statutory text specifically distinguished LEIs from other kinds of common identifiers in this regard. So, for example, the ABA argued the FDTA does not require common financial instruments identifiers to be nonproprietary or available under open license.

Arbitrary rulemaking. The ABA letter was critical that the proposed rulemaking did not provide any analysis of the potential economic impact of establishing FIGI as the common financial instruments identifier. The ABA contended the agencies have attempted to “sidestep” their obligation to consider costs and benefits by claiming that the proposed rule only applies to themselves. The ABA countered that the proposed rule “necessarily will force a change throughout the financial markets[]” (emphasis included) with respect to collection of information reported to the agencies.

FIGI questioned. Moreover, the ABA questioned whether FIGI is even nonproprietary or available under open license. The ABA contended that OpenFIGI offers access to only a “narrow set of data with limited utility” leaving the most useful FIGI data fields “hidden behind a paywall, available only to users with a paid subscription to more complete reference data as accessible with a Bloomberg terminal.”

The ABA letter continued that CUSIP and FIGI are “not interchangeable.” Whereas CUSIP identifiers “are fungible because each security has exactly one CUSIP identifier that represents the same security regardless of the venue where it is traded.... with respect to common stock there is a different FIGI number for the same security for each exchange on which the security trades and for each country in which it trades.” The ABA said this went against the agencies’ own determination that “fungibility is critical to minimizing trade failures, ensuring transparent reporting, and monitoring and assessing systemic risk.” And again, as to non-interchangeability, the ABA argued that CUSIP offers 60 critical reference data fields for each security, whereas OpenFIGI only offers a “narrow set” of data with the rest of FIGI fields pay-walled.

Call to action. The ABA said the agencies must provide more time for notice and comment from the various kinds of CUSIP users. Without that additional user consideration and feedback, the agencies will fail to properly reconsider the proposed choice of FIGI as the common security identifier under the FDTA.

Companies: Bloomberg LP

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