Nuts and Bolts of Financial Data Transparency Act and Disclosures for Issuers

Transcription:

Speaker 1 (00:05):

All right, we've got our next panel up. It is Nuts and Bolts of Financial Data Transparency Act and disclosures for issue.

Emily (00:13):

What is required to be reported. The law, as Emily was explaining, it covers eight different agencies and each agency is represented the same way in the language. And so for this piece of it, it's very vague, just municipal reporting. Now it could be the annual comprehensive financial report. It could be all of disclosure, it could be the offering statement, it could be all kinds of things, or it could start off with one type of report and then add to it over time. And frankly, what we see with the SEC, which is now named as the lead on this in terms of agencies, is that they have rolled out for public companies, certain reports need to be reported in structured format. And then later on, a few more and a few more. So over the years they have continuously added to it. So it very well could roll out slowly.

(01:09)

And if it comes into documents like the offering statement or some of the other disclosures that are more narrative, I know this is something that is very much of interest to people is narrative can also be very easily captured in machine readable format. Today, corporate entities have to report not only their financial statements, but the footnotes to the financial statements which are text. So it may be they don't cover their MD and A, but things like what is their accounting policy? And the nice thing about that is that a lot of people do like to extract that. That's really interesting information that they can extract and then they can compare against other entities in a similar industry or that are undergoing a similar situation. And we know that that's something that issuers on the corporate side use a lot because they may say, Hey, I'm going through this strange acquisition, let me see other entities that have done that. And then they can pull that data very quickly and easily because it's all structured.

Speaker 3 (02:09):

Got it. So say for example, an issuer wants to make a voluntary disclosure about a social movement that happened in their community that has a nexus to credit. You're saying we can just layer on structured data format to extract a news article, a picture, a pie chart,

Emily (02:34):

A picture not with XBL, because that's, that's something our specification doesn't manage, but tables and a text block is essentially a way of encapsulating a block that may have text in it, it may have tables, and it retains the integrity of that table. So that kind of information can very easily be captured in a textbook. And that's what companies do today and utilities and other entities that report. Does that answer that question?

Speaker 3 (03:06):

It does, yes. Well, so we still don't know kind of is where we're at. What we don't want is for a technology that prohibits voluntary disclosures, we'd like for a technology that would enhance, allow for issuers to continue those voluntary disclosures.

Emily (03:25):

Oh, absolutely. And I think I didn't quite understand. So when there are voluntary disclosures, it's kind of up to the regulators. So if the SEC Office of Municipal Securities or whoever is finalizing this legislation says voluntary disclosures are allowed to be reported in structured format, absolutely that's very easy to do. That's just a technical issue, but it's really up to whoever is laying this rule out. And frankly that's something that you all can have, can influence when the proposal comes out. Is that if you'd like to include voluntary disclosures, then say so and it can easily be added into, it could be part of a standard taxonomy or there are ways that government entities can kind of create their own concepts and say, I want to put this disclosure in called Emily Rock's disclosure about climate change or something. And there are definitely ways of doing that. And then that's data that let's say may not be useful for somebody who wants to compare 10 different government entities because it's a custom item, but it may be something that you choose to report every year. And so if you're reporting it every year, it's something that somebody can look at a time series essentially of that narrative disclosure, and then other entities may pick up on that and say, Hey, I'd like to do that too. I'm going to report that same information.

Speaker 3 (04:50):

Thank you. I'm going to ask Rob another question. From an issuer perspective, you've been at two fairly large entities, but I think in some cases some folks have said this would prevent smaller issuers from coming to the market. The municipal market is great because we have large, small, the market is open to everyone. If this layering of technology, the extra cost, the extra risk actually prohibits those smaller issuers from coming to the market. Of course, adding to the common theme of this conference could further reduce market volume. So what do you think about that?

Rob (05:33):

I think yes, Flint financially is a larger entity, but we are smaller in the aspect of we're running on a team equivalent to a size of a city, half our size. So I think that the big thing is, really, like you said in the beginning, understand once we get closer what this really means. And then to Michelle's point that they're supposed to be open data, the world that I hopefully see this going into is you can have paid programs that are going to give you the Cadillac version and then you can have a free program that meets the requirements of the federal guidelines that would allow a smaller issuer to get into this market. I guess in Flint, obviously by my intro I'm not there, but the goal was to bring XBL tagging process into our internal systems so that the tagging was conducted at the same time we're preparing our financials themselves. So then it's kind of one and done, and then next year we're ready to roll. So yeah, I think it's just all about education and then being careful. Just like now I have a thousand people sending me emails about why their debt book program's the best. I hit delete, I'm sorry if you're one of them, I don't care. Just do your research, you know what you want to work with, understand it going into it. And I think that will help with that issue.

Speaker 3 (07:07):

Excellent. Thank you. And I'm going to ask one more common question that comes.

Emily (07:12):

can I just go ahead? I just want to comment on the, I think that's a totally fair question because when something new is coming along, it can hold people back. And that was very commonly, it was a common issue among on the corporate side as well. There were a lot of concerns that the IPO market was going to dry up, that companies would choose not to go public or would go private because they didn't want to have to comply with this added disclosure requirement. But that wasn't the case. We actually saw the IPO market increasing after the implementation of this program of XVL, and I don't think it's had any impact. And now the IPO market of course is very strong, but I think it's definitely issuer concerns are very important.

Speaker 3 (08:00):

Well, this is my last question. So start thinking about y'all's questions here. We're going to take questions from the audience. This is one that comes up all the time. I would say a few weeks ago I was in the great state of New Jersey, go New Jersey. Awesome. Well, the famous thing about New Jersey is that they are non gap reporters to the IR of every credit rating analyst out here, right? You guys just trying to get the information out. But that non-gap question, if Michelle, the ideal is for the standards of the GASB to be sort of the mainframe, what do you anticipate those sort of non-gap reporters, which it's not just New Jersey, there are non-AP reporters in every single state. How is it that plays a role in the standardization or the data standards conversation?

Emily (08:54):

Well, a couple things. I mean for states that completely do not cover, do not follow GASB gap at all. I think I was mentioning this earlier, I think they're going to need to create their own taxonomy. And so that is not an insignificant task, but it is something that will have to happen. But the hope is that they will roll up their elements to higher level elements that do match up with what the GASB has. I mean, I would imagine their definition of assets is going to be the same as assets for GASB gap. There are also elements that a lot of governments report that may not be part of the GASB gap. And that's the same thing on the corporate side and those, but for the taxonomy that's used by corporates, all of those industry specific elements are included as well. And they are not gap, they are not corporate gap, but they're still in the taxonomy because they have to be reported. And so I think for just like we've done about 40 different financial statements and for different entities around the country, mostly general purpose, but some special districts and there are lots of elements on there that we know are not part of standard GASB gap, but those are in the draft taxonomy that we've created because we know they had to be reported and we know lots of places are reporting them, not just one or two entities.

Speaker 3 (10:19):

Thank you. Are there any questions?

Audience Member 1 (10:26):

A couple of points. Just first, the whole point around taxonomy. One of the concerns, and you can call it voluntary disclosures or whatever's committed to in the CBA conservatively, you could say there are 27 sectors. We've looked at disclosure obligations where municipalities have committed themselves to tables and charts and other information in the thousands. And in many cases municipalities are calling this something, they'll use the same terminology, but the actual content will be different in terms of what they're reporting. So the first question is, as we think about the taxonomy is how you're going to account for that. And then the second is every time there's a new issue, an issuer can decide that there's or an underwriter can decide or an investor can decide there's additional information that I want. And so there can be a new obligation that's created. And these things are kind of ongoing in our industry. And I guess in the second part of my question relates to the discussion around the corporate market or EDGAR versus the rest of the muni space. In corporate world, you have certain obligations as to what you have to report. And Emily mentioned it at the outset, right? In municipal market we have Tower Amendment and there are some requirements, but there's not that we have. And so how are we going to account for that?

Speaker 3 (11:58):

All great questions, Greg. Thank you. I thought you might have a couple of key points and I think if I can distill or add on to Greg's great points questions, things in disclosures are changing all the time. And if it is a structured, it is a static, it is a thing that's always there. Is there any kind of technology that can allow for the additive nature of new information, the new requests, the changing tables, the change that is constantly being at requested by the investor community?

Emily (12:34):

And I think you were talking about the corporate market kind of staying the same all the time, or maybe not all the time, but more so than the municipal market. Right? On the corporate side, companies have to report every quarter and they follow a taxonomy that changes every year and they transition to a new taxonomy each year. And what the FASB does is the Financial Accounting standards board has a group of accounting standards setters in one side of the organization, and then they have the X BAL taxonomy modeling group on the other side. They work together when there are changes that need to be made. And those may be changes that are accounting standards, but they may also be industry changes. They have industry groups that they work with closely to see what other things may be required from investors. And then they produce a new taxonomy towards the end of the year. They put it out for public review during which time all corporations and anyone who's interested can take a look at it, review it, and provide input, and then they finalize it and then everyone switches over to that new taxonomy at the start of the year for the next year for the FDIC. The FDIC actually publishes new taxonomies every quarter. And because they make changes throughout the year and so.

Speaker 3 (14:06):

Do they solicit the public for those changes?

Emily (14:10):

The FDIC? That's a good question. I don't know. They do a lot of their own analysis internally. They have a large group of analysts, but so they publish new taxonomies every quarter to reflect changes that need to be taken into account. And so it's a taxonomy. It's not a set thing. It is a living growing animal. And I'm not sure if I'm answering your question, but.

Audience Member 1 (14:43):

What you're describing is a change that's coming from a single source, whereas in our space, the change is not coming from a single source. It can come from arguably every new issue that comes to market in a given year or a given quarter, however you want to. And so the challenge is not coming from the single source and communicating that back out. It's actually going the other way, is where I see the challenge.

Emily (15:13):

I mean, that's something I'd have to dig into that a little bit more and understand where those changes come from. Because on the FASB side, not to get too detailed here, but the FASB really does have, they have a large group of outside organizations and stakeholders that they consult with when they make these changes. So they do not do this in a vacuum and it's not a single source, but what you're talking about may be a little bit different. So I'd be very interested in learning more about that so we could see how it could be handled. But yeah, that's an interesting issue.

Speaker 3 (15:42):

Any other questions? Yes.

Audience Member 2 (15:52):

So, hi, Emily. So you talked about GASB and the standardizing. Is anybody talking to them or is there a conversation? And if that conversation is going on, you also have to talk about standardizing, but not as frequently as you just described, because that will not be possible but a question.

Speaker 3 (16:15):

Yeah. I would say the relationship with GASB and the Government Finance Officers Association. I would say GASB actually does a terrific job of soliciting beyond GFOA. They talk with nationally of cities, national, state treasurers, but we are tied at the hip. We talk with them probably weekly, if not more. And we're talking to the chairman, Joel Black. So he has vested in this conversation, and I can't speak on the GASB'S behalf, but I know that it is public information that they are working on a taxonomy themselves, and it's not as a result of the FDTA. In fact, they had been pursuing a taxonomy far before the FDTA. I think every time I talk with Joel, he has discovered a new technology, a new way of thinking about this. And it's sort of breaking the mold of what people thought GASB was. They're really thinking about technology and incorporating technology in financial reporting. Thank you. Alright, any more questions? Well, gosh, I want to thank my esteemed panelists for being here, and I want to thank you all for being here and for your attention. And you got to find us at the cocktail hour. We're just talk in letters.