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September 11, 2012
Kick-off Meeting
1. What is SMART Regulation? 2. Why should regulatory agencies and regulated
companies embrace SMART Regulation? 3. Why do we need a SMART Regulation Task
Force? 4. What are the goals of the Task Force? 5. What are the activities of the Task Force? 6. How will the Task Force operate? 7. What are our next steps?
Standardized, Measurable, Actionable, Reliable, Transparent
Charter: “SMART Regulation is the consistent definition and use of industry data standards in regulatory language and regulatory disclosures.”
SMART Regulation means … ◦ Agencies’ rules are precisely documented using industry standard
language to minimize ambiguity for makers and consumers. ◦ Companies’ filings are machine-readable for better enforcement,
cheaper compliance, and Big Data analysis. ◦ Regulatory impacts are precisely modeled and communicated.
Industry data standards include: ◦ Vocabularies/Business Natural Language (e.g. SBVR) ◦ Models (e.g. FIBO) ◦ Interchange formats (e.g. XBRL) ◦ Identifiers (e.g. LEI, GS1 taxonomy of identifiers)
Standards are created by independent standard-setters… ◦ OMG ◦ W3C ◦ ISO ◦ GS1 ◦ XBRL Int’l.
… Incorporated by regulatory agencies into rule text and required disclosures …
… Used by regulated entities to ensure compliance and prepare required filings ….
… And used by software companies as the basis for new solutions in compliance, management, market research, and business intelligence.
“In financial regulation, simple is good.” Sebastian Mallaby, Financial Times, 4 Sept 2012
“The tower of Basel is at risk of over-fitting – and over-balancing. It may be time to rethink its architecture.” Andrew Haldane, ED financial stability, Bank of England, 31 Aug 2012
SMART Regulation clarifies and simplifies regulatory rules, processes, and disclosures.
SMARTRegula,onwillallowregulatorstodra4rules,iden,fyoverlapsandconflicts,es,mateandtrackimpacts,andenforcemoreefficiently. SMARTRegula,onwillallowCongressandtheexecu.vebranchtoevaluatethecostsandbenefitsofregulatorypoliciesobjec,vely. SMARTRegula,onwillallowregulateden..estocomplycheaplyandreliably. SMARTRegula,onwillhelpanalysts,investors,andconsumersmakebeEerdecisions. SMARTRegula,onwillallowtaxpayersandthepublicfullaccesstopublicdata. SMARTRegula,onwillofferopportuni,esforso4waredeveloperstocreateproductsthatfacilitatealloftheabove. SMARTRegula.onprofessionalswillhelpthemakersandconsumersofregula,onoperateefficiently.
Case study: regulatory ambiguity CFTC Proposals on Swaps Rules Provoke International Criticism Letters Pour in From Around the World on CFTC Swap Rules (Dodd-Frank Act mandates that have
led to rulemaking that pertains to derivatives trades) Regulations being developed by the CFTC would require certain foreign entities engaged in U.S.
facing swap deals to register under the Dodd-Frank Act's swap dealer registration requirements and abide by rules that include having swaps be guaranteed at clearinghouses ◦ unclear definition of what, exactly, constitutes a “U.S. person,” a cornerstone of the
extraterritorial effort. Australian Securities and Investments Commission, the Reserve Bank of Australia, the Hong Kong
Monetary Authority, the Hong Kong Securities and Futures Commission, and the Monetary Authority of Singapore issued a joint letter that expressed concern the proposed requirements, as they currently stand, may have “unintended consequences” on financial markets and institutions outside of the U.S ◦ Affected non-US persons will have to comply with two sets of regulations, which may be
overlapping and conflicting. This is compounded by the lack of clarity. ◦ Potential market disruption or fragmentation, with consequently increased risks to systemic
stability and market liquidity in their markets, may arise as market participants have to change their business models or even withdraw from certain businesses, all within a relatively short period of time
CFTC solution? ◦ A standardized vocabulary and decision-tree modeling would clarify the CFTC’s requirements. ◦ A standardized data interchange format for swap dealer reporting would allow reporting entities to automatically compile reports using existing systems.
Notable successes … ◦ SEC and FDIC adopt XBRL for some filings ◦ OFR and financial agencies embrace LEI ◦ FIBO is being evaluated for derivatives and mortgage-backed securities
… Real opportunities … ◦ Australia and the Netherlands demonstrate the promise of SBR ◦ Big Data industry is already developing the necessary tools
… But policymakers remain unconvinced. ◦ The U.S. House approved, but the Senate rejected, data
standardization language for the Dodd-Frank Act ◦ SEC XBRL is limited to financial statements ◦ No coordination between financial and non-financial agencies ◦ No engagement by Office of Information and Regulatory Affairs
Policymakers will not embrace data standards unless they understand their application. ◦ Example: Financial crisis and LEI ◦ Needed: Case studies and proofs-of-concept
Regulated entities will not accept data standards without a clear path to implementation. ◦ Example: Contrast FDIC XBRL implementation with SEC XBRL ◦ Needed: Standards-based solutions before the standards are imposed
GoalOne:DefineSMARTRegula,onandiden,fybenefitstomakersandconsumers◦ Refineworkingdefini,on:SMARTregula,onistheconsistentdefini,onanduseofindustrydatastandardsinregulatorylanguageandregulatorydisclosures.◦ Iden,fybestprac,cesforusingindustry‐definedvocabularies,models,andinterchangeformatsinSMARTregula,on.◦ Includebestprac,cesfortransparencyandopenness.◦ Refineunderstandingofbenefitsforregulators,Congressionalandexecu,veoversight,regulateden,,es,markets,andconsumers.
GoalTwo:IntroduceSMARTregula,ontomakersandconsumers◦ Iden,fykeyregulatoryareaswhereSMARTRegula,onmightprovideearly,measurablebenefitstoregulatorsandregulatedcompanies.◦ Promotedevelopmentofprototypestosupportvision,architecture,andso4warestandardsforSMARTregula,on.◦ Iden,fy‘earlyadopter’regulatoryagenciesandregulatedcompaniestodevelopcasestudies;seektocreateabodyofacademicresearch.◦ Seekbuy‐in/supportfromkeyprivateandpublicsectorleadership;advocacytoUScongress,otherUSandglobalgovernmentagencies.
GoalThree:EstablishSMARTregula,onecosystem◦ Iden,fyandpromotedevelopmentofindustrydatastandardsinregulatoryareaswherenoneyetexist.◦ Create,iden,fy,andadvocateacomprehensivebodyofSMARTregula,onpolicyini,a,vesinCongressandtheexecu,vebranch.◦ Establishopensourceso4wareecosystemtosupportSMARTregula,onfunc,ons:dra4ing,processflow,life‐cyclemanagement,cost‐benefit,compliance,disclosure,intelligence,marketresearch,etc.◦ Developrequirementsforstandardmetricstomeasurebusinessvalueofrules.
GoalFour:DefineandpromotetheroleofaSMARTRegula,onProfessional◦ Defineskill‐sets(businessandIT)thatwillleadtodevelopmentofhumancapitalinandopportuni,esinSMARTRegula,on.
Create proofs of concept and case studies Encourage Congress to re-introduce and pass standard
legislation Engage regulators directly and through comment letters Seek allies ◦ Relevant Congressional committees, GAO, CRS ◦ White House OSTP, OIRA, ACUS ◦ U.S. SEC, Treasury, FINRA, FSB, OFR, CFTC ◦ International: Global FSB, G20, EBA ◦ Private: SIFMA, GFMA, Chamber, Financial Services Roundtable
Web, social, and earned media Encourage academic commentary Identify the universe of standardization opportunities Define and validate required data standards
Recruit Task Force members ◦ Agency leadership (see previous slide) ◦ Data Transparency Coalition members ◦ OMG members (private and public sector) ◦ Academics ◦ Nonprofits
Set Task Force conference calls and meetings Assign tasks ◦ Government contact ◦ Messaging ◦ Research ◦ Development
