US Financial Transparency Act 2015 - a direction to follow?

The introduction today of the US Financial Transparency Act 2015 is a reflection of a fundamental need for change that is gaining recognition around the world – a need for greater transparency, standardisation and understanding of the data underpinning financial sector operations. 

In recent years, business complexity has increased to the point where accurately identifying clients and counterparties can be extremely difficult, and identifying what is being traded is even harder still.  Those factors can make meaningful risk management impossible.

The introduction of this landmark open data legislation is demonstrative of the increasing focus legislators and regulators are placing on enhancing the transparency of risk and improving risk management.  It signals an awareness that financial institutions are not using standards for data, even where such standards already exist.  It also demonstrates an awareness that the nine main financial regulators in the USA are not yet using data standards either internally or for exchanging data with each other – all of which adds to the cost and inefficiency of regulation.

Global bodies such as the Financial Stability Board (FSB) and CPMI-IOSCO are also looking at these same issues.  National regulators across the EU as well as the European Securities & Market Authority (ESMA) completed a consultation on some of the issues surrounding data standardisation in March, and market participants are now waiting to see what the results of ESMA’s considerations will be.

Regulators in countries around the world will be watching what happens in the USA and in Europe, with the aim of all learning from each other.  Some of the principles of the US Financial Transparency Act are very relevant to regulations in the EU such as MiFID II/MiFIR, EMIR, SFTR, etc, and there is still time for ESMA to take such principles on board before it issues its final Technical Standards for MiFID II/MiFIR.