U.S. regulators are proposing to step up market surveillance with a new rule requiring firms to provide them with client account and transaction data.
The Financial Industry Regulatory Authority (FINRA) is requesting comment on a proposed rule to implement a new data collection initiative, known as the Comprehensive Automated Risk Data System (CARDS). The regulator says that CARDS is “designed to enhance investor protection and ensure market integrity by allowing FINRA to identify and quickly respond to high-risk areas and suspicious activities that it might not identify through its current surveillance and examination programs.”
Under the proposal, the new system would be implemented in phases. In the first phase, approximately 200 carrying or clearing firms would be required to periodically submit certain account information in an automated, standardized format; including data on securities and account transactions, holdings, account profile information, and securities reference data. They would not be required to submit specified account profile information primarily related to suitability. In the second phase, introducing firms would be required to submit account data either directly to FINRA, or through a third party.
FINRA stresses that it will not be collecting any personally identifiable information, including account name, account address, or Social Security numbers. It also says that all the data sent to FINRA would be encrypted to ensure security.
“It is critical that we work together to strengthen investor confidence, and the ultimate purpose of the data and analytic capabilities to be obtained through CARDS is to help protect investors’ bottom line. Without collecting one iota of personally identifiable information, CARDS will help us quickly identify unusual trends and product concentrations — and take swift, responsive action,” said Richard Ketchum, FINRA chairman and CEO.
FINRA says that its staff is continuing to collect and assess information about the costs, benefits and other economic impacts of the proposed new system. It plans to develop an economic impact analysis regarding the anticipated costs and benefits of phase two. The comment period expires on December 1.