Finra playing its CARDS right

Mar 9, 2014 @ 12:01 am

In backing down on plans to collect the names, addresses and tax IDs of brokerage account holders, Finra has offered opponents of its Comprehensive Automated Risk Data System a major concession.

Now it is time for those opponents to repay the favor and get behind the regulator's efforts to improve its monitoring of brokerage firm customer accounts.

Protecting investors is of the utmost importance to all financial advisers, brokerage firms and clearinghouses. The Financial Industry Regulatory Authority Inc.'s proposal to begin collecting individual account data — such as account types and categories, customer investment profiles, purchase and sales transactions, additions and withdrawals, margin and balances, and a description of securities — will help the regulator identify harmful sales practices more quickly and efficiently.

If implemented, CARDS will boost Finra's efforts to ferret out a laundry list of violations, including churning, excessive commissions, pump-and-dump schemes, markups and mutual fund switching.

Soon after Finra introduced the CARDS proposal in December, industry groups such as the Financial Services Institute Inc. and the Securities Industry and Financial Markets Association, began raising privacy and data security concerns. 

Critics of the proposal expressed legitimate concern over the fact that so much sensitive data would be stored in one central database and therefore would be vulnerable to theft of epic proportions. They also worried that Finra's collection of client-identifying data, such as names, addresses and Social Security numbers, might also make clients more susceptible to fraud.

Finra's decision last week to refrain from collecting client-identifying information should allay some of those concerns and therefore make the regulator's push to gather more brokerage account data more palatable.

It would be imprudent for industry groups to stand in the way of efforts to use data analytics to identify “red flags” involving sales practice misconduct with firms, branches and registered representatives.


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