SEC commissioner calls out ‘potential pitfalls’ in regulators’ structured data efforts

In a speech Tuesday before the RegTech 2023 Data Summit, SEC Commissioner Hester Peirce questioned whether the agency’s rollout of structured data requirements is being strategically implemented, adequately addresses the costs of creating structured data for smaller entities, and might create data that is not useful to the public.

Other potential pitfalls include “the dangers of embedding in rules technology that inevitably becomes outdated and the likely result of making it easier for government to process data, which is to increase the appetite for collecting ever more data,” she said.

Structured data is defined by the SEC’s Office of Structured Disclosure as “data that is divided into standardized pieces that are identifiable and accessible by both humans and computers.” It can be created and communicated “using data standards like XBRL, XML, and JSON or generated with web and PDF forms.”

With widely available software, investors, analysts, and regulators can “easily analyze vast amounts of structured data without extensive and burdensome manual processing,” the agency said.

In 2022, Congress passed the Financial Data Transparency Act (FDTA) within the National Defense Authorization Act for Fiscal Year 2023. The FDTA requires joint rulemaking by financial regulatory agencies, including the SEC, on data standards for information collection and reporting.

In her speech, Peirce urged the SEC and other regulators to establish a better overall plan for structured data.

“A strategic approach to implementation also should include initiatives to improve the utility and relevance of structured data for all investors. People are more likely to use structured data filings if they are accurate and comparable,” she said. “… The FDTA is not focused simply on having agencies produce structured data but on producing data that are useful for investors and the commission.”

Peirce suggested one way the SEC could look to the future is to use structured data to make its own rules easier to analyze and follow. In October, the Financial Industry Regulatory Authority (FINRA) announced it began developing a machine-readable rulebook “designed to enhance firms’ compliance efforts, reduce costs, and aid in risk management.”

Peirce said the SEC should consider following FINRA’s lead and “try integrating machine-readable rules into its rulebook,” beginning by “tagging no-action letters and comment letters on filings.”