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Regulation and Compliance > Federal Regulation > FINRA

FINRA’s CARDS Plan Dead on Table: Axelrod

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The Financial Industry Regulatory Authority’s Comprehensive Automated Risk Data System proposal, or CARDS, “is not going any further,” but the self-regulator will continue to be “dedicated” to using data and “more advanced analytics to be a smarter, more efficient” regulator, Susan Axelrod, FINRA’s executive vice president of regulatory operations, said Tuesday.

Speaking during a question-and-answer session at the National Society of Compliance Professionals annual meeting at National Harbor, Maryland, just outside Washington, Axelrod said that data analytics has been “front and center” in FINRA CEO Richard Ketchum’s mind, and that “a lot more work will continu[e] in that space for years to come,” even after Ketchum departs next year.

Ketchum announced on Oct. 30 that he will retire in the second half of next year. Ketchum told lawmakers in May that the controversial CARDS plan was under review, and that it would not move forward until all the security concerns were addressed.

CARDS faced fierce backlash from financial services firms and lobbying groups like the Securities Industry and Financial Markets Association and the Financial Services Institute.

“We’re going to continue to use data to help inform our exams,” Axelrod told ThinkAdvisor in a separate interview after the Q&A. “So issues like looking into the dual reps … will continue to be front and center for us. But CARDS is not moving forward. We’re going to look at other ways [to collect data] through our exam methods.”

The “good thing is we get a lot of data today — systemically and also through exams,” Axelrod said during the Q&A. FINRA may ask for more information, for instance, when performing exam sweeps. “We’re thinking about things like that; I still firmly believe that [data collection] this is the path of the future, and that firms are being better about data analytics.”

Axelrod noted FINRA’s ongoing focus on risk-based exams, stating that FINRA and examiners are “much more focused on the business at hand—[looking at] new areas of [a firm’s] business, issues of financials and we require [examiners] to think differently. Changing that culture takes time, but we’re working on it.”

She noted FINRA’s 15 offices around the country that house the self-regulator’s district directors “who are there to hear the feedback” from firms, adding that FINRA is contemplating giving firms that it will examine the name and contact information for the “exam manager and contact director” so that the firm can get information from the examiner before she comes onsite.

Axelrod also told the compliance officer attendees that the self-regulator takes very seriously the enforcement cases it brings against compliance professionals. “I can’t tell you how seriously we take these cases and how much thought goes into making the right judgment calls,” she said. “We understand that these are people’s careers,” and “we are so sensitive about getting it right.”

She said only “a handful” — from 3% to 4% — of FINRA’s enforcement cases are against compliance professionals. “We feel comfortable that when we bring those cases, they are the right cases to bring.” Axelrod told ThinkAdvisor that FINRA’s actions against compliance professionals primarily involve a failure to supervise the business or a specific individual — not a “procedural” issue.  

An area where FINRA is seeing “significant” violations is in anti-money laundering. “We still see an increasing number of AML issues during exams,” she said. “I would not be surprised if there aren’t more significant issues in this space. It’s an area where we will continue to see enforcement cases.”

Comments are also coming due at the end of November on FINRA’s proposed rule that would give broker-dealers the power to place a temporary hold on disbursement of funds or securities from an elderly or mentally/physically handicapped customer’s account if there is a reasonable belief that the person is being financially exploited.

FINRA’s Board gave the self-regulator the go-ahead on Sept. 17 to issue the rule for public comment. FINRA did so in mid-October by releasing Regulatory Notice 15-37.

One initiative where Ketchum has held Axelrod’s “feet to the fire,” she relayed, has been in implementing FINRA’s senior helpline. Axelrod said that she was “very proud” that six months after launching, the helpline has received 2,000 calls from 50 states, the United Kingdom, Israel and Vietnam.

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