Finra develops searchable rulebook to help brokerages navigate compliance

How well the system works will depend on the quality of the taxonomy, a compliance expert said.

Finra is trying to help brokerages get a better handle on compliance by making its rulebook easier to delve into online.

The Financial Industry Regulatory Authority Inc. announced last week that it has kicked off a machine-readable rulebook initiative. The broker-dealer self-regulator has classified and categorized key terms and concepts that can be applied to the 40 most frequently viewed rules.

Called an “embedded taxonomy,” it is designed to help a user start with a broad topic and then narrow it down to more specific subcategories and topics through the use of multiple terms. Finra has posted a prototype – the Finra Rulebook Search Tool (FIRST) – on its website.

Wrestling the Finra rulebook to the ground is part of everyday professional life for Steven Hurwitz, director in the financial services compliance and regulation practice at Kroll Compliance Consulting.

“I think [the machine-readable version] could be a huge help,” Hurwitz said. “Sometimes you’re trying to find a needle in a hay stack. I would love to have something like this where the system would help me narrow down my search. It’s either going to find what you’re looking for or you can feel comfortable that it doesn’t exist.”

Like many people, Hurwitz has been frustrated by rule research he’s conducted on Finra’s website. Whether the electronic rulebook is a significant improvement depends on the quality of the search function.

When working in FIRST, users can explore summary topics and detailed topics before selecting search terms, Finra said. They can then expand and collapse the taxonomy as they browse.

“I think the taxonomy is the key to the whole thing,” Hurwitz said. “It’s how the system will connect the dots. This has the potential to be better than your search term.”

Hurwitz recommended that the system enable users to find enforcement cases related to various rules. He’ll get a chance to give Finra that input during a comment period on the rulebook initiative that runs through Dec. 20.

Users can access the taxonomy tagged for the 40 rules through an Application Programming Interface. Through the API, firms can link their internal compliance policies and procedures to Finra rules and taxonomy terms.

“We developed the taxonomy structure and the FIRST search tool to help all users more easily identify and search applicable rules regardless of their level of expertise,” Afshin Atabaki, Finra special advisor and associate general counsel, said in a statement. “Whether you are a seasoned securities law practitioner or a new investor, you are likely to find FIRST to be a valuable search tool.”

Finra hopes its enhanced online rulebook will help member firms better address compliance risks and reduce compliance costs.

“The securities industry is increasingly relying on technology to improve both internal operational functions as well as regulatory compliance,” Haimera Workie, Finra vice president and head of the Office of Financial Innovation, said in a statement. “Finra’s machine-readable rulebook initiative is designed to support these efforts by providing technology-based tools, allowing market participants to potentially enhance the effectiveness and efficiency of their compliance efforts and thereby support investor protection and market integrity.”