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FINRA’s house of CARDS falls

It’s all about the data. The SEC and FINRA want all the data they can obtain and then some. The SEC has successfully implemented NEAT and MIDAS, which collect trading data and can be used in a micro and macro environment – predicting trends, insider trading and other non-compliance actions. CARDS, designed by FINRA, was to assist them with identifying supervisory infractions at the client, firm and advisor level.

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

The data collected would have also provided FINRA information on the Registered Representative, the branch location, the volume and products sold to clients, including client demographics. This would have assisted in regulatory exams and determining high risk areas of the broker-dealer’s business. The expected benefit would be 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.

Ketchum, who announced his retirement for the second half of 2016, said in May of this year that CARDS was under review and would not move forward until all the issues are resolved. Unfortunately for FINRA the issues could not be worked out and on November 3rd it was taken off the project list.

FINRA will continue to be vigilant in collecting data from multiple sources. FINRA believes data collection and analysis is the future and will look for other ways to obtain this data. So, stand by… the future of compliance remains ahead of us.

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