Big data becomes a sharp weapon for regulators

Regulators are using troves of digital information to monitor broker-dealers

Dec 21, 2014 @ 12:01 am

By Mark Schoeff Jr.

As broker-dealers and advisory firms begin to tap into big data to find customers, increase revenue and improve investment performance, regulators are using troves of digital information to monitor them.

“With the proliferation of big data and growing complexity of our markets, we need to better harness technology in order to keep up with wrongdoers,” SEC enforcement chief Andrew Ceresney said in a speech last month.

One agency initiative involves gathering nonpublic clearing firm data to ferret out sales patterns that could cause investor harm.

“Through this process, we are deploying proprietary data analytics to identify troubling trends in the sale of complex products to retail investors that might serve as the basis of a suitability or failure-to-supervise case,” Mr. Ceresney said.


The Financial Industry Regulatory Authority Inc., the industry-funded broker-dealer regulator that reports to the SEC, also is trying to ramp up its use of big data. Its top priority is to implement the so-called Comprehensive Automated Risk Data System, better known as CARDS, which would collect reams of brokerage customer account information on a monthly basis.

Officials argue that CARDS will make Finra a more nimble and effective regulator, enabling it to catch problems as they're emerging rather than having to dig them out in firm-by-firm examinations.

“Fundamentally, the regulator's lament is getting there too late,” Finra chairman and chief executive Richard Ketchum said at a conference in Washington earlier this month.

The initiative is encountering stiff resistance from the Securities Industry and Financial Market Association, which has asserted that CARDS is big data run amuck and makes account data vulnerable to hackers.

But the use of data is nothing new for the SEC and Finra. For the last several years, the regulators have been using risk-based analysis to target examinations of firms most likely to be out of compliance.

“They're getting smarter about how they utilize data,” said Amy Lynch, president of FrontLine Compliance. “They're not so much looking for a needle in a haystack. They know which haystack to look in.”


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