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FINRA wants to look at your CARDS

FINRA is playing it close to the vest, giving you until February 21 for input on its concept to develop a new oversight system – Comprehensive Automated Risk Data System (CARDS). Regulatory Notice 13-42 outlines the purpose of this new technology. Some may look at this initiative as completely intrusive into you and your client’s business affairs. Others will take the position of complete transparency where the regulator will be able to conduct more efficient exams and be able to proactively identify the wrongdoers letting the “good guys” grow their business and serve their clients. We’ll have to see how this hand plays out. FINRA is holding all the cards on how this is executed and the information collected is dealt and vetted – and they’re not bluffing.

CARDS is a system that will pull in client account and relationship information from clearing firms and self-clearing firms. The system will collect information that is required to be part of the broker-dealers books & records, including client personal data, suitability, investment products and trading. An introducing broker-dealer would be required to provide its clearing firm with specific information on their books so that the clearing firm can share that with FINRA, in addition to other information it provides to FINRA. This would expand FINRA’s data on your firm and clients right down to your hole cards. FINRA would be able to perform analytics on suitability, trading, products more readily identifying abuses such as churning, excessive fees, markups, pump and dump, break points and more.

The data collected will also provide FINRA information on the Registered Representative, the branch location, the volume and products sold to clients including client demographics. This will assist in regulatory exams and determining high risk areas of the broker-dealer’s business.

The expected benefit is to broaden FINRA’s knowledge of the broker-dealer’s business and risks. This should improve your examination experience, which is dependent upon the examination team.

The SEC and FINRA are clearly “raising” the bar on their technology and improvement of regulatory oversight. Don’t go ‘all in’ with a weak compliance program and risk your ‘chip stack’. RegMaven is a securities consulting firm whose mission is to work with our clients on understanding the Rules and Regulations. Understanding your business model and risks, and developing a program where your business’ reputation and financial position have reduced risk is our goal. Be as proactive as your regulator –

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