01.03.2014
By Terry Flanagan

Finra Seeks Comments on Automated Risk System

The Financial Industry Regulatory Authority (Finra) is soliciting comment regarding a proposal called Comprehensive Automated Risk Data System (CARDS). CARDS will involve account reporting requirements that would allow Finra to collect, on a standardized, automated and regular basis, account information, as well as account activity and security identification information that a firm maintains as part of its books and records.

In its first phase, the CARDS program will increase Finra’s ability to protect the investing public by utilizing automated analytics on brokerage data to identify problematic sales practice activity. Finra plans to analyze CARDS data before examining firms on site, thereby identifying risks earlier and shifting work away from the on-site exam process.

“The information collected through CARDS will allow Finra to run analytics that identify potential “red flags” of sales practice misconduct and help us identify potential business conduct problems with firms, branches and registered representatives,” said Susan Axelrod, Finra’s executive vice president of regulatory operations.

The core principles in the recently released framework regarding Finra’s Approach to Economic Impact Assessment for Proposed Rulemaking will guide the CARDS rulemaking process and help reduce unnecessary burdens to the industry.

“Finra’s new Framework will result in a more transparent and rigorous rulemaking process. Finra will consult with key stakeholders and provide clarity about the objectives and potential impacts of the proposal,” said Finra’s Chief Economist Jonathan Sokobin.

As currently envisioned, once CARDS is implemented, clearing firms (on behalf of introducing firms) and self-clearing firms would submit in an automated, standardized format, and on a regular basis, specific information relating to their customers’ accounts and the customer accounts of each member firm for which they clear.

Separately, Finra released its 2014 Regulatory and Examination Priorities letter which highlights significant risks and issues that could adversely affect investors and market integrity this year.

“The purpose of this letter is to provide insight to the industry on specific areas of concern for our regulatory programs in the coming year,” said Susan Axelrod, executive vice president of regulatory operations at Finra. “We encourage firms to use this guidance along with their own analysis to enhance their programs as we will be examining for strong controls and robust compliance efforts in these areas.”

Finra’s examination priorities for 2014 provide the industry with a road map of issues that may be of risk to the investing public, said Richard G. Ketchum, Finra’s chairman and CEO. “By providing clear and detailed guidance to firms, we hope to not only support firms’ compliance efforts but also to alert firms to the issues we have identified as the most salient risks to investors and the integrity of our markets.”

Finra addresses topics related to business conduct, fraud, financial and operational concerns, and market regulation priorities in the letter, and will update its view on risks throughout the year, adjusting its regulatory programs and allocation of resources to address changes in those perceived risks.

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