A new act, widely expected to become law, will change financial reporting for businesses. So, what is the Financial Transparency Act?
Last year, the House of Representatives passed the Financial Transparency Act H.R. 2989. The proposed legislation will require financial regulatory agencies to switch to a new set of data standards that are focused on discoverability and transparency.
Currently, this act is under review by the Senate Committee on Banking, Housing, and Urban Affairs. The law is expected to move from committee and eventually become law, and it has wide bipartisan support.
Reporting Changes Under the Financial Transparency Act
The Financial Transparency Act will require companies to adopt electronic reporting forms instead of paper-based forms. The act is also requiring the use of open-source data formats rather than proprietary data formats.
The act also mandates that companies use standardized language, so that regulators can more easily compare reports from different entities. Regulators themselves will need to comply with a new set of data collection and dispersal standards designed to increase transparency.
Access is a key point of the proposed legislation. The Financial Transparency Act will require that no license restrictions or access restrictions be placed on data. It must be downloadable and electronically searchable.
These changes will ensure that the major financial regulatory agencies report information in a consistent manner. Not only will this have implications for data accuracy, but it will also make it easier for regulators to review and analyze data.
Benefits of the Financial Transparency Act
Transparency benefits companies and markets by creating an even playing field. Everyone from tech startups to banks and financial institutions would now be subject to the same reporting requirement. Requiring greater transparency should make it more difficult for organizations to get away with financial abuse, such as fraud.
On the regulatory side, financial regulators should receive accurate, searchable data faster than before. They should be able to make decisions quickly and respond with more agility to changing market forces.
Financial reporting is due for modernization, and we at DFIN support these efforts to update reporting requirements. The Financial Transparency Act takes a major step toward this goal by adopting artificial intelligence and regulatory technology to develop more efficient reporting. This dovetails nicely with those companies that have existing investments in AI-powered technology while also benefiting their financial reporting processes.
Knowing this act will very likely become law, companies should give thought to their financial reporting software. If they do not have software that aligns with the principles of the Financial Transparency Act of searchability, transparency, and standardization, now is the time to look for a more robust reporting software that supports these features.
DFIN supports the Financial Transparency Act for several key reasons. We believe that the Financial Transparency Act will ultimately help businesses and organizations operate more efficiently while remaining in compliance with regulations, and it will help keep governments and the public informed. While the new reporting requirements may take some getting used to, they should ultimately save time, increase accuracy and efficiency, and pave the way for greater automation of business processes in the future.