The Securities and Exchange Commission is looking to machine readable data to conduct risk assessment.
The U.S. Securities and Exchanges Commission is diving headfirst into new strategies to increase financial data transparency and accessibility. The goal, as outlined at the Data Coalition's March 29 Financial Data Summit, is to become a proactive -- rather than reactive -- enforcement entity.
In the past 18 months, the SEC has proposed or adopted 10 new rules on structured disclosure. Mary Jo White, who chairs the agency, has announced work on a revamped Office of Structured Disclosure website, as well as future implementation of inline XBRL viewers for the SEC.gov website. XBRL is shorthand for eXtensible Business Reporting Language -- a freely available global standard for exchanging business information that has been embraced by the SEC.
Structured disclosure refers to open, machine-readable data, as opposed to paper-based or scanned PDF documents that cannot be searched by automated means.
"Any webpage you look at is about structured data being presented through a rendered application," said SEC Assistant Director of the Division of Economic and Risk Analysis Mike Willis. "Anything that's machine readable is human readable. It just happens that way through rendering… Humans read the HTML, machines read the XBRL."
Willis noted that this sort of structured data has been available to the SEC "for about 10 years… so we no longer have to wait for someone to manually parse out some piece of data, which is the electronic equivalent of the stone tablet." But he praised the potential of a currently in-development inline XBRL viewer, and showcased prototypes and mock-ups of the dual human- and machine-readable format at the conference.
"Inline is simply an HTML document with XBRL embedded in it," said Willis. "Inline is a common Internet format. If you've been to YouTube, you've used inline."
This enables the viewer, the reader to actually pull up the metadata and allows them to navigate the report more effectively to actually see what they're looking at."
Inline XBRL is already used by regulators worldwide, including "UK, Ireland, Denmark just to name a few… and is used by the largest companies and the smallest companies" in those countries, continued Willis.
For the SEC, the inline viewer would result in lower costs because "we would only be dealing with one set of numbers instead of two," and would provide automated searching capabilities to query financial data to determine its accuracy, as well as compare disclosure reports.
Although the SEC has not mandated the adoption of the inline viewer or announced any timeline for these updates, Willis said that, to his knowledge, there are no technological barriers preventing such implementation.
He also argued that increased data accessibility through the Internet is inevitable, and compared the future of data transparency to the past of electricity. "Through the standardization of electricity, it became a pervasive idea, available to all of us," he said. "I think the same thing will happen with data."
One of the biggest issues the SEC faces in its financial data transparency is inaccurately reported data from private companies, but the agency is seeking to improve its risk assessment and minimization efforts, as well.
The Corporate Issuer Risk Assessment program, launched last year, is a homegrown program that allows SEC staff to detect abnormalities in financial statements.
"CIRA provides us with a comprehensive overview of the financial reporting environment of Commission registrants and assists our staff in detecting anomalous patterns in financial statements that may warrant additional inquiry," Director Division of Enforcement Andrew Ceresney said. "Because this is a homegrown tool, we can customize the tool as needed… to be more proactive in our enforcement efforts, to try to detect misconduct before it becomes public."
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