Last March the U.S. organization for eXtensible Business Reporting Language, or XBRL, presented observations to the domestic policy subcommittee of the House Oversight and Government Reform Committee on using an XBRL standard, a common set of words and abbreviations that surround data, for residential mortgage-backed securities.

It recommended:

  • Defining the information disclosures necessary to evaluate a security across the entire MBS supply chain, including origination, security issuance, rating and loan servicing.
  • Requiring reporting in a common data format, specifically, XBRL, to ensure the quality, compatibility and comparability of the information reported.
  • Requiring a common, centralized reporting system — similar to the Securities and Exchange Commission's Edgar System — and ensuring equal access to the information by market participants.

However, the difference between those first two points, enacting legislation for a standardized and uniform searchable data format, as XBRL is, versus the necessary standardization of data content, the "information disclosures," was lost in translation. The resulting legislative proposal, the Government Information Transparency Act, made no reference to standardizing data content but rather used the words "uniform data standard" to mean the XBRL data format.
This bill has not been enacted, and until it also includes a directive to legislate a data content standard, it should not be.

Legislatures were apparently swayed by XBRL's success in enabling computer access to corporate filings sent to the SEC's Edgar database, a distinctly different accomplishment. Unlike the recognized success in placing XBRL tags around the standardized reporting, in compliance with generally accepted accounting principles, of financial results, financial industry data standards, whether for mortgage bonds or myriad other financial products, have not yet been standardized. While recognizing this, the U.S. organization for XBRL left the impression with legislators that the solution is XBRL tags. However, the real issue is that data identifiers across the financial transaction life cycle and supply chain are incompatible.

This renders reporting of this data nonsensical to regulators, even if XBRL data tags surround it and can be plucked out by computer means. The wrong ID will still be found; different IDs will be found for the same data tag in different submissions; and data identified as belonging, for example, to one tranche of a security will be aggregated erroneously with another.

XBRL is secondary, though an important contributor to getting standardized data at a granular level from reports into computer-accessible formats. In applying XBRL tagging, issues of standardizing data content come to the fore. The heavy lifting of standardizing and centralizing data content must come before the more granular data is imported into reports that then are tagged.

The XBRL organization is to be commended for its willingness to step into the breach and move the agenda forward. The issue has been alive in the financial industry for decades. Solutions are again being proposed. For example, the American Securitization Forum has proposed a set of standardized data elements, 135 to be exact, that would be required at the point of mortgage origination and all of which should eventually be assigned XBRL data tags.

The logical entry point for an XBRL initiative is to work more comprehensively with the industry and the issuing corporations to further identify standard data tags across the complete supply chain and life cycle of all financial transactions. Here, the Enterprise Data Management Council already has an effort under way to create a semantic repository for just such a comprehensive view of financial transactions.

The fundamental restructuring of the financial services industry begins with corporate CEOs' willingness to support data standardization and the associated tagging of such data in regulatory filings. This is a mandate for regulators to continue pursuing.

Regulatory compulsion would allow a transformation of the financial services industry's infrastructure and a linking of data in filings to financial intermediary access and on through the supply chain of financial companies and institutions that trade, match, clear, settle, pay, take custody of, aggregate and report on the economy's financial transactions.