Update: March 14, 2014
The House Financial Services Committee voted 51-5 in a recorded vote to approve H.R. 4164 and send it to the full House. The five votes against the bill came from Representatives Maloney, Velázquez, Capuano, Himes, and Foster on the Democratic side of the aisle.
This morning, the U.S. House Financial Services Committee voted in favor of H.R. 4164, the "Small Business Disclosure Simplification Act," which exempts over 60% of U.S. public companies from the obligation to file their financial statements with the Securities and Exchange Commission in the eXtensible Business Reporting Language (XBRL) structured data format.
The committee's voice vote did not officially approve the bill. A final, recorded vote is scheduled for tomorrow morning at 9 a.m. EDT. We expect formal approval to occur then.
H.R. 4164 is sponsored by Rep. Robert Hurt, a Republican from Virginia, and Rep. Terri Sewell, a Democrat from Alabama. The committee's approval of this bill is a setback for data transparency.
Most bipartisan proposals receive unanimous approval. This one will not. We are grateful that Rep. Carolyn Maloney (D-NY) refused to vote for the bill, specifically citing the need for the SEC to move toward data and away from documents.
"We have to move forward not backward on XBRL," said Rep. Maloney during remarks before the committee.
|Rankandfiled.com illustrates what the SEC could do with open data|
As we explained yesterday, the exemption will hurt both investors and public companies if it becomes law. Free investor resources like RankandFiled.com and paid services like Thomson Reuters use the XBRL open data set to deliver actionable information to investors. If the exemption becomes law, investors will no longer have access to structured data at this level of detail to help them make decisions.
Public companies, particularly small ones, will see added difficulties as well if H.R. 4164 becomes law. Data is easier for analysts to use than documents and allows them to cover a broader range of companies. Broader coverage reduces companies' cost of capital. Under the Small Business Disclosure Simplification Act, small companies might save $10,000 per year, according to the Financial Executives Research Foundation -- but their performance will be watched by fewer analysts and considered by fewer investors. Analyst coverage will decrease for all small companies, regardless of whether they choose to continue voluntarily submitting XBRL data (as the proposal allows them to do), because the whole data set will become much less attractive as a basis for analysis when it is no longer complete.
The bill's title -- the "Small Business Disclosure Simplification Act" -- is a misnomer because it cuts off the XBRL reporting requirement at $250 million in annual revenue. Sixty-one percent of public companies were below that threshold in 2012, the last year for which full figures are available.
Finally, the bill will close the books on our members' ability to build new businesses on corporate financial data. Open government data is a public resource that supports innovation and stimulates new jobs. If H.R. 4164 becomes law, SEC open data will not be open any more.
Although we were sorry to see the committee discussion resolve in favor of the bill, we were pleased that Rep. Sewell, in her statement to the committee, recognized the underlying reason why companies perceive no value from the efforts they invest in preparing XBRL filings: the SEC's "lack of consistent enforcement" of the data quality. Poor data quality raises barriers to the effective use of financial information by investors and analysts because the data set requires cleaning before it can be used. We oppose the bill, but it may spur the SEC to needed action.
|Rep. Sewell (L) and Rep. Hurt (R)|
For now, it is very important for the leadership of the House Financial Services Committee, Chairman Jeb Hensarling and Ranking Member Maxine Waters to understand that the tech industry and the open data movement oppose this proposal and will raise public objections if they seek to bring it to the floor of the House. Rep. Maloney also deserves our thanks.
Although the committee has had its debate, there is still time to change members' minds about this bill. Even today, Rep. Waters acknowledged that her committee had been "contacted by those who don't agree" with the bill. Speaking extemporaneously, she added that she "would like to see the U.S. on par with our international counterparts who already use XBRL reporting."
Our voices are being heard, and we can still alter this bill's present course. Moreover, we can push Congress to direct the SEC to adopt a coherent data strategy that can deliver reliable open data to citizens, investors and analysts.
We cannot continue to oppose anti-open data measures like the Small Business Disclosure Simplification Act without the support of our members. If you and your company or organization agree that the SEC should use open data formats instead of plain text documents for reporting, please consider joining us. And join us this Tuesday morning for breakfast with four U.S. financial regulators to discuss the future of data transparency in financial regulation.