Richard Ketchum, chairman and CEO of the Financial Industry Regulatory Authority, said Monday that while the self-regulator was moving ahead with its controversial Comprehensive Automated Risk Data System (CARDS) as it’s “the next step—and big leap forward—in the evolution” of FINRA’s risk-based regulatory programs, FINRA has created broker-dealer working groups and is “aggressively” seeking BD feedback to “get this right.”
Noting the more than 800 comment letters that FINRA received on its CARDS plan, Ketchum told the 1,000 attendees at FINRA’s annual conference in Washington that “your input is critical to us getting CARDS right. By giving us your feedback, you have an opportunity to contribute to the best solution possible. Please help us shape this.”
However, Ketchum said that while FINRA is “looking closely” at the cost and operational concerns that broker-dealers have raised, many commenters’ concerns “seem to me to be a tad one-sided.”
CARDS, Ketchum argued, “has the potential to be one of the most important investor protection tools to emerge in recent years,” and “strongly urged” BDs to view CARDS “through the broader lens of investor protection, rather than through the more narrow lens of how it affects your firm.”
That being said, Ketchum said that FINRA recognized “that costs tied to CARDS are a real issue for firms,” stating that’s FINRA has created a CARDS “pilot” and is talking to BDs about the “real, bottom-line impact” it may have on their firms.
CARDS would be a rule-based program that would allow FINRA to collect — on a standardized, automated and regular basis — account information, as well as account activity and security identification information that a firm maintains as part of its books and records.
CARDS, Ketchum said during his remarks, “will allow us to collect and manage data from firms in such a way that we can quickly identify trends and product concentrations that are harmful to investors and take swift, responsive action.”
The automated system would gather data from broker-dealers and clearing firms that the regulator can then use to spot potential problems with sales practices of individual BDs, branches and reps prior to onsite FINRA exams.
Indeed, Hardeep Walia, co-founder and CEO of Motif Investing and a member of both FINRA’s Small-Firm Advisory Board and its Technology Advisory Committee, noted on a compliance panel after Ketchum’s speech that “there’s a lot of good that can come out of CARDS,” adding that “the power of CARDS is that it’s the next generation of regulation, which is technology.”
If “we can get it right and get safeguards around it, it will be the next-gen form of regulation” that other regulators can look to, he said.
Michelle Oroschakoff, chief risk officer of LPL Financial, noted on a separate panel on the top 10 regulatory issues that “if done right,” CARDS ”is going to be terrific” for the markets and for investors, allowing “more targeted [exam] sweeps.” However, she said that advisors were already getting questions from their clients about CARDS regarding data privacy issues and that the “investing public is not as supportive of” CARDS as may have been thought. BDs’ feedback has already changed the original CARDS plan, which was issued as a concept release.