The financial industry is currently facing a significant challenge with the proposed implementation of the Financial Data Transparency Act (FDTA), particularly concerning the identification system used for financial securities. Central to this debate is a proposed transition from the established CUSIP (Committee on Uniform Securities Identification Procedures) codes to Bloomberg’s Financial Instrument Global Identifier (FIGI). The American Bankers Association (ABA), which oversees the CUSIP system, has expressed strong opposition to this change, raising concerns about regulatory overreach, potential operational costs, and the quality of data accessibility.
At the heart of this issue is the difference between two identification systems: CUSIP and FIGI. CUSIP has been the long-standing standard for identifying various types of securities, including municipal bonds, with its proprietary nine-digit alphanumeric structure. On August 1 of this year, regulators proposed replacing it with FIGI, which is touted for its open-access model and real-time coverage across global asset classes. The ABA contends that the decision to switch to FIGI not only undermines existing frameworks but also lacks a comprehensive evaluation of the implications for market participants.
The ABA is adamant that FIGI provides access to only a limited dataset while critical information remains concealed behind a paywall, a concern that questions the accessibility and usability of financial data. They argue that this shift will not only confuse users but may also lead to considerable financial burdens on municipalities and states that are unprepared for such a significant change. The takeover of the identification framework by FIGI raises fundamental issues regarding the adequacy of information and the overall transparency that the FDTA aims to promote.
Regulatory Overreach and Concerns
One of the ABA’s key arguments revolves around the notion that federal agencies—including the Securities and Exchange Commission (SEC)—have overstepped their authority in proposing this rule change. They assert that the agencies have acted “arbitrarily and capriciously” under the Administrative Procedure Act. This assertion demands scrutiny, as it raises questions about the balance of authority between different governmental bodies and the impact of these regulations on market practices. If the ABA moves forward with legal action, the implications for the implementation of the FDTA could delay progress significantly.
Moreover, the ABA has requested an extension of the comment period to gather further data to substantiate their claims. The request indicates an effort to ensure that stakeholders have adequate opportunities to engage in dialogue and provide feedback, particularly given the tight timeline approaching the initial October deadline. The fear is that moving forward without a comprehensive understanding of the implications will create a tumultuous environment that may threaten the stability of the municipal market.
As the FDTA mandates a shift toward machine-readable formats for municipal securities disclosures, the potential fallout for market participants becomes increasingly concerning. Issuers have expressed the apprehension that the learning curve and investment required to adapt to new standards will create barriers to entry and may disadvantage smaller municipalities or entities. The move to FIGI could be seen as a push for modernization, but a modernization that lacks sufficient consideration of the complexities of existing frameworks and stakeholder readiness.
Anticipated rulings from the SEC, which are expected by the end of 2026, must take these conversations into account. Failure to acknowledge the concerns raised by the ABA could lead to a regulatory framework that, while modern in approach, falls short in terms of practicality and adherence to the original intent of the FDTA.
The transition from CUSIP to FIGI under the FDTA remains a contentious subject. With the ABA emphasizing the importance of revisiting the proposed rule, it’s evident that the discussions surrounding financial transparency and identification standards require a deeper investigation. Without careful consideration of stakeholder impacts, the intended benefits of such regulatory changes may not materialize, leaving critical gaps in the fabric of financial data transparency and market stability.