Jay Clayton says SEC will collect only limited information about investors in new market surveillance initiative

Jay Clayton says SEC will collect only limited information about investors in new market surveillance initiative
Critics still worry that cybercriminals will be able to hack system
NOV 19, 2019
Securities and Exchange Commission Chairman Jay Clayton said Tuesday a pending market surveillance system will limit the amount of data it collects on investors to their names, addresses and telephone numbers — not the kind of personal information that could expose investors to identity theft. Mr. Clayton addressed financial industry concerns about the so-called Consolidated Audit Trail, a mechanism that will capture data on customers and orders for exchange-listed equities and over-the-counter securities across all U.S. markets. When the system is implemented, the SEC will add more than 58 billion records daily to its database. The CAT is designed to help securities regulators detect and quickly react to events that disrupt the markets and could potentially harm investors. But skeptics assert the system could expose investors' personally identifiable information to hackers. In an appearance at the Securities Industry and Financial Markets Association annual meeting in Washington, Mr. Clayton said the SEC needs the ability to do "market reconstruction" but will keep investors' data safe in the process. "With phone book information, we can do our surveillance job," Mr. Clayton said. "I would encourage people to get on board with that proposal. Fundamentally, we're not taking any [data] unless we believe that we can protect it, and we're going to minimize what we do take at the end of the day." [Recommended video: Bernie Clark: Zero commissions give advisers more opportunities to win clients] The customer database is scheduled to be implemented in 2022, while a transactions database will go into operation next year. Earlier this year, the Financial Industry Regulatory Authority Inc. was selected as the plan processor for CAT. "It's full steam ahead to get this done," Mr. Clayton said. "I expect to resolve these [personally identifiable information] issues." One particular area of concern for the industry is the collection of account details. Mr. Clayton said the CAT won't house customer account numbers. "We're working on making sure that that's something that has appropriate … encryption or other techniques," Mr. Clayton told reporters on the sidelines of the SIFMA conference. "There are ways that you can identify accounts and traders without using account numbers." Mr. Clayton's reassurances didn't assuage one CAT critic. "The SEC is creating the world's largest one-stop-shop for cybercriminals just to appease career bureaucrats in the enforcement division," American Securities Association CEO Chris Iacovella said in a statement. "Moving forward with this policy is dangerous and reckless, and if they don't change course, this commission will own causing the identity theft of millions of American investors." CAT is similar to an idea pursued several years ago by Finra to use data analytics to target potential investor harm. The Comprehensive Automated Risk Data System was ultimately killed due to industry worries about the security of customer data. Mr. Clayton is trying to deliver CAT in what has become a long journey. The rule to create CAT was adopted in 2012. "This was one of the worst-conceived, worst-executed projects I've seen," Mr. Clayton said. "We're back on track." Register now for our ESG & Impact Forum at the U.N. on Dec. 5.

Latest News

Northern Trust names new West Region president for wealth
Northern Trust names new West Region president for wealth

The new regional leader brings nearly 25 years of experience as the firm seeks to tap a complex and evolving market.

Capital Group extends retirement plan services further with a focus on advisors
Capital Group extends retirement plan services further with a focus on advisors

The latest updates to its recordkeeping platform, including a solution originally developed for one large 20,000-advisor client, take aim at the small to medium-sized business space.

Why RIAs are the next growth frontier for annuities
Why RIAs are the next growth frontier for annuities

David Lau, founder and CEO of DPL Financial Partners, explains how the RIA boom and product innovation has fueled a slow-burn growth story in annuities.

Supreme Court slaps down challenge to IRS summons for Coinbase user data
Supreme Court slaps down challenge to IRS summons for Coinbase user data

Crypto investor argues the federal agency's probe, upheld by a federal appeals court, would "strip millions of Americans of meaningful privacy protections."

Houston-based RIA Americana Partners adds $1B+ with former Morgan Stanley director
Houston-based RIA Americana Partners adds $1B+ with former Morgan Stanley director

Meanwhile in Chicago, the wirehouse also lost another $454 million team as a group of defectors moved to Wells Fargo.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.