As SEC Reporting Modernization moves from planning to preparation, one persistent gap in those plans – and an issue at the top of everyone’s concerns – is the release of the Form N-PORT XML Schema. XML is data that has been assigned standardized tags that denote the meaning of each data item. It is what enables computer systems to read and understand the values that appear in a report and allows for the automation of data analysis, especially comparisons between funds and time periods.
The schema is a necessary prerequisite to finalizing the e-filing portion of filer readiness. The form items and some instructions about how to complete them are available now, but the means to convert the answers into the format required to electronically file Form N-PORT is not. The schema also includes the tests that will be performed by the SEC on the filings to make sure there are no data issues, such as incorrectly formatted dates. If a filing does not pass, it will not be accepted by the SEC and will not be considered filed. Being able to replicate those tests and solve problems before you bump up against a regulatory deadline is a must have.
Unfortunately, based on past experience, the schema won’t be available for quite some time. Also based on past experience, the SEC is not likely to take reasonableness into account when they come up with the timing. For example, the SEC issued a final rule for the second round of money market reform in July 2014, including an updated Form N-MFP. The Form N-MFP updates, like the new Form N-PORT, had an 18 month compliance period. Despite the release of the final rule in July 2014, an effective date in October 2014, and a compliance date in April 2016, the first version of the schema was not released until December 2015, 17 months after the final rule and 14 months into the compliance period. It was then modified six times in the months leading up to and following the first filing made in May 2016, and this does not count the NRSRO changes required in the October 2016 filing. I could tell a similar tale of woe for just about every other regulatory filing released over the past eight years.
Schema releases and multiple changes on short notice require frequent technology updates on short notice, and creates a state of affairs that does an admirable job of frustrating filers. Since you need the schema to finalize your technology solution, what good is an 18 month compliance period if the schema isn’t released until well into month 14? And how do you lock down your tech updates if the schema changes multiple times in the four months before the first filing, and then a few more times after the first filing? That frustration has led to informal talk in the market about “lobbying” the SEC, about organizing a movement to demand that the SEC make good on its compliance period claims and give us what we need for the full 18 months, not just the last four.
Unfortunately, these efforts at lobbying for a reasonable time frame are just tilting at windmills. To be fair, at a broad, strategic level, regulators do tend to be reasonable and responsive. However, past experience not only with Form N-MFP but also with Form PF, and extending to other regions and regulators, experience with MMIF and Form CPO-PQR, shows that once the direction has been set and we are just talking about technical specifications, reasonable and responsive go out the window. Rather than deal with the situation by pretending that you can get the SEC or any other regulator to change its ways (you can’t), a far better approach is to change your ways. Accept that you won’t have much time to react, and then make process and technology choices that are built around the fast pace of regulatory change.