First FDTA proposal appears to be delayed

The expected deadline for the first glimpse of controversial new data standards for municipal market issuers has come and gone, with a hint that the closely watched rulemaking process may be pushed back a few months.

The Securities and Exchange Commission and seven federal agencies involved in the rulemaking were expected to release a joint Notice for Comment by June 28 for the Financial Data Transparency Act of 2022. The notice marks the first of a multi-stage process that ultimately calls for municipal market issuers to report their financial data in a digitized, machine-readable format, as is currently required in corporate disclosure.

The initial joint notice will outline proposed data standards and so-called legal entity identifiers and ask market participants for comment.

Donna Alberico

As of mid-July, the notice has failed to appear. A July 10 blog by Cooley LLP notes the SEC's spring 2024 agenda appears to push back most of its actions until next year. The blog notes that the FDTA agenda item had been on the SEC's fall 2023 agenda with a target date of April 2024, and it's "now delayed until October 2024."

A spokesperson for the Securities and Exchange Commission said the agency doesn't comment or provide updates on the timing of regulatory actions.  The Treasury Department, which is also part of the rulemaking process, did not immediately respond to requests for comment.

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.

"It's joint rulemaking, which means our part is the same as [the other seven federal agencies]," said Emily Brock, federal liaison for the Government Finance Officers Association. "It's only going to go out at the latest point that all of them can agree to. One can't go before the other."

Meanwhile, the already complex, yearslong rulemaking process for FDTA may be further complicated by the presidential election and the U.S. Supreme Court's recent so-called Chevron ruling.

A clean sweep by one party could bring into play the Congressional Review Act, which allows both chambers of Congress to nullify a recently adopted rule by passing a joint resolution that is then signed by the president.

In its SEC blog, Cooley said, "if the stars were aligned for a newly elected controlling party," the CRA would "allow a House and Senate in the next Congress to quickly revoke regulations the SEC and other agencies issued in the latter part of 2024, provided that there was also a president who would sign off."

Brock said it remains to be seen how and if the Chevron decision will affect the FDTA rulemaking process. The high court's June decision in Loper Bright v. Raimondo overturned the 1984 Chevron v. Natural Resources Defense Council decision, which had mandated that federal courts defer to federal agencies' interpretation of ambiguous or unclear laws. Now, federal courts will have the main responsibility to interpret statutes when Congress leaves them ambiguous.

Many expect Chevron to unleash a wave of challenges to agency rules and guidance. House Republicans last week launched a review into rules and guidance floated by the U.S. Department of Transportation, the Environmental Protection Agency and Homeland Security since President Joe Biden took office.

"We're in the middle of rulemaking — this is the administrative interpretation of the Congressional act," Brock said. The law requires the agencies to solicit feedback from market participants, which is part of the joint notice, she said.

"But the interpretation of our comments back, and their executing those in a final rule, is where Chevron may play a role," she said. "Chevron paints an interesting perspective around the FDTA implementation."