Brokerage industry concerns about the scope and costs of a Finra initiative to collect massive amounts of customer data have led one interest group to do more than simply fire off a comment letter written by staff.
The Financial Services Institute announced Thursday the formation of a task force to work on the group's response to Finra's Comprehensive Automated Risk Data System. The panel will be led by LPL Financial President Robert Moore.
The task force will meet for the first time on Friday, with the goal of being “constructive” rather than obstructive, Mr. Moore said in an interview.
“There is no position of trying to explicitly stop it,” Mr. Moore said. “There is an explicit intention to form a task force with the mission of engaging constructively and collaboratively in this process. This is a very important proposal for investors, for financial advisers, for brokers.”
On Tuesday, the Financial Industry Regulatory Authority Inc.
proposed a rule to implement CARDS, a mechanism that would gather reams of account data from clearing firms and brokerages each month. Finra, the broker self-regulator, argues that the system would enable it to detect dangerous industry trends and potentially harmful sales practice more quickly than it can now in firm-by-firm examinations.
The previous iteration of the plan, which was introduced as a concept release last December, drew sharp criticism from the brokerage industry over customer-data risk and the technology spending it might require.
It is “too early to tell” whether Finra has addressed industry concerns with its latest plan, Mr. Moore said. The previous concept release generated 800 comment letters, with 140 of them being unique and the others form letters.
“Generally speaking, I'm very happy with how the proposal has moved forward in a fairly positive direction that's reflective of the kinds of comments and feedback that Finra received, which were extensive,” Mr. Moore said.
The FSI task force will analyze “data security, data quality, regulatory oversight and cost” related to the CARDS proposal, according to an FSI statement.
WIDE VARIETY
It will include participants with a variety of product mixes and platforms, said Robin Traxler, FSI vice president for regulatory affairs. The organization represents 100 firms and about 37,000 independent broker-dealers and financial advisers.
“We're gathering input from all different types of firms,” Ms. Traxler said. “It's a way to ensure that Finra is hearing from a very diverse membership.”
The FSI is encouraged by some elements of
Finra's latest proposal, Ms. Traxler said. For instance, it will allow a 15-month implementation period for brokerages. But the group is not ready to bless CARDS.
“It's a lot of information to digest,” Ms. Traxler said. “We're still working through [the latest proposal] to figure out what areas of concern are and how it is going to impact our members and investors.”
The Securities Industry and Financial Markets Association, a trade group of securities firms, also is taking a cautious approach.
“CARDS raises a number of important concerns, including investor privacy, data security, duplication of regulatory data collection … and other cost-benefit concerns, that remain outstanding and must be fully vetted with all interested parties,” Ira Hammerman, SIFMA executive vice president and general counsel, said in a statement.
At an FSI conference earlier this week, Susan Axelrod, Finra executive vice president for regulatory operations, said it is taking industry criticisms into account as it hones the CARDS proposal. But Finra is committed to making it a reality.
“CARDS is something I think we at Finra are really passionate about,” Ms. Axelrod said. “I think CARDS will help us be a more proactive regulator, which is absolutely better for the investing public.”
The regulatory notice released on Tuesday contained some economic analysis. The FSI wants to see more as the proposal is developed.
Ms. Traxler said she hopes FSI input will be part of a “longer, more robust quantitative analysis of both the costs and benefits” in the next CARDS iteration.
The CARDS proposal released on Tuesday has a Dec. 1 deadline for comments. At that point, Finra can modify the proposal and present it to its board for authorization to send to the Securities and Exchange Commission, which must approve the final rule.
