Banks hint at legal action over FDTA's move to replace CUSIP identifier

The American Bankers Association is pushing back hard against a proposed rule for the controversial Financial Data Transparency Act, accusing the Securities and Exchange Commission and other federal agencies of overstepping their authority in seeking to replace the current identifier system for financial securities, including municipal bonds.

The proposed FDTA rule, unveiled Aug. 1, would replace the standard nine-digit alphanumeric CUSIP identifier with Bloomberg's Financial Instrument Global Identifier, or FIGI.

In Sept. 3 letters to the SEC and other federal agencies in charge of FDTA rulemaking, the American Bankers Association, which owns CUSIP, said the agencies have "acted both outside the FDTA's statutory mandate and arbitrarily and capriciously" under the Administrative Procedure Act in proposing the move.

Bloomberg News

The ABA and CUSIP Global Services, which operates the CUSIP system, are seeking a 60-day extension of the comment period, set to close on Oct. 21, to give them more time to gather data to illustrate what they warn will be a costly and disruptive shift across the global market.

The association hinted at legal action without a revamped proposal.

"As our letter makes clear, we believe the current proposal does not comply with the Administrative Procedure Act or the plain statuary language of the FDTA and should be reconsidered and reproposed. If the agencies do not take that step, we will consider all of our options," said an ABA spokesperson in an email.

Enacted in December 2022, the FDTA requires that municipal securities disclosures be converted into a machine-readable format. In the municipal market it's garnered the most controversy from cities, states and other issuers who worry that the shift to machine-readable standards will be confusing and expensive.

The Aug. 1 proposal, which provided the first glimpse of the FDTA's final rules, surprised the market with its proposal to shift to FIGI from CUSIP. The agencies said CUSIP is proprietary and not open license and they preferred FIGI because it "provides free and open access and coverage across all global asset classes, real-time availability, and flexibility for use in multiple functions."

But ABA says the agencies' decision to shift to FIGI because it's nonproprietary and open license "fails to follow Congressional intent."

FIGI gives users access to only a "narrow set of data" while the most "useful fields ... are hidden behind a paywall," the letter said, referring to the Bloomberg terminal.

"As result of the agencies' implicit – and erroneous – conclusion that FIGI and CUSIP are interchangeable, they have failed to consider or explain 'relevant and significant issues' that would be created as a result of the material differences between and lack of interchangeability of the two identifiers," the letter said.

SEC Commissioner Hester Peirce said she supports the proposed FDTA rule in an Aug. 2 statement but also singled out the securities identifier debate in the proposed rule. Among other things, she questioned whether FDTA's mandate extends to financial instruments and whether the agencies are correct in saying that FIGI does, and CUSIP does not, meet the FDTA's criteria for designation as a joint standard.

The current timeline calls for final rulemaking to be released in December, with the SEC publishing proposed muni market-specific standards in 2026, followed by the Municipal Securities Rulemaking Board's proposal and call for comments. By the end of 2026, the SEC is expected to issue its final rule for municipal market standards with the effective dates coming in 2027 or after.