Finra has a way to go to convince the brokerage industry that a massive brokerage-account-information collection system will be good for the financial markets.
At the Securities Industry and Financial Markets Association annual conference in New York on Monday, the organization's leader said that it opposes the proposal, known as the Comprehensive Automated Risk Data System.
SIFMA President and chief executive Kenneth Bentsen Jr. said that the industry has qualms about the price tag that CARDS would carry for brokerage firms and potential customer privacy breaches. He also said that CARDS, which would frequently collect reams of brokerage account information, duplicates supervision and surveillance activities companies already have in place.
“We don't think Finra has yet answered the questions that really need to be answered,” Mr. Bentsen said in an interview on the sidelines of the conference.
There's also a “philosophical problem” with the CARDS proposal, Mr. Bentsen said.
“Turning over account-level data on a regular basis to one quasi-government entity is just something that the public doesn't like doing and our members think their clients don't like,” Mr. Bentsen said.
The
Financial Industry Regulatory Authority Inc. is the industry-funded broker-dealer regulator. The CARDS initiative has been a priority for Finra since the idea was first floated at last year's SIFMA annual conference. In September, Finra
released a proposal to implement CARDS.
The proposal would implement the Comprehensive Automated Risk Data System, or CARDS, which was originally unveiled as a concept release in December. The rule introduced in September would establish the system in phases, the first of which would require about 200 clearing firms to submit customer-account information to Finra regarding securities accounts it clears for brokers. The information would include transactions, holdings and account profile data.
The second phase would require about 1,850 brokerages to submit account information either directly to Finra or through a third party that would include investors' time horizons, objectives, risk tolerance and net worth, but would exclude personally identifiable information, according to the regulatory notice. Both groups would have to submit the information on a monthly basis.
On Monday, Finra chairman and chief executive Richard Ketchum defended CARDS in an appearance at the SIFMA conference. He argued that the system would help Finra detect much more quickly and efficiently investment-product sales abuses and other trends that could hurt investors. Currently, Finra must detect problems through firm-by-firm examinations.
“Our early warning signals are limited,” Mr. Ketchum said. “We're getting to problems where investors are severely harmed too late.”
SIFMA and other groups are sharpening their CARDS critiques. Comment letters on the implementation proposal are due on Dec. 1. After Finra reviews the letters, it may revise the proposal, which would have to be approved by the Securities and Exchange Commission before it goes into effect.
Finra is listening to CARDS critics, Mr. Ketchum said.
“It's still very early in the game,” Mr. Ketchum told reporters at the SIFMA conference. “We're looking very closely at the cost implications across various different types of broker-dealers.”
The CARDS proposal will be the first major test of Finra's
cost-benefit analysis efforts.
Mr. Ketchum was adamant in reiterating that Finra months ago revised the CARDS proposal to ensure that personally identifiable customer information is not collected.
There is “zero…not one iota of personal information,” Mr. Ketchum said.
During Mr. Ketchum's SIFMA session, Ira Hammerman, SIFMA executive vice president and general counsel, said that Finra has made a strong effort to reach out to the industry for reaction.
Mr. Ketchum said that he wants Finra and the industry to agree on the overall goal of enabling the regulator more quickly to identify and respond to investor threats.
“Let's think together about how best to do it,” Mr. Ketchum said.
