FINRA CARDS: What You Need to Know

Pointing-Out-Rules-in-BookOn December 23, 2013, FINRA published a request for comment on Regulatory Notice 13-42 to develop a new Comprehensive Automated Risk Data System (CARDS), a program that would allow FINRA to automatically collect broker-dealers’ account, account activity, and security identification information directly from clearing firms on a daily or weekly basis. FINRA has stated in the proposal that the purpose of CARDS is to identify risks in order to target surveillance and examination programs, to identify business conduct patterns and trends in the industry, and to assist firms with their compliance and supervisory programs. FINRA also stated in the proposal that CARDS would reduce the amount of information requests firms receive from FINRA.

The CARDS proposal presents significant challenges due to its ambitious scope and massive scale. Perhaps most concerning of all is the collection and centralized warehousing of vast quantities of data that would result from CARDS. Because FINRA seeks to collect account and account activity data, CARDS would result in an investor’s entire financial picture being maintained in one central location. Such aggregated financial account data is unprecedented and raises substantial concerns with regard to data security, privacy, and potential liability in the event of a security breach.

Other significant challenges include data standardization, data complexity, data translation, system infrastructure, and the incredible financial costs required to develop and implement CARDS. Specifically, FSI members are concerned with the costs associated with standardizing the data. FSI members are concerned that these costs will be passed along to broker-dealer firms and severely impact smaller independent firms in particular. These costs will likely fall to some extent on individual financial advisors and ultimately their clients. which would have a disparate impact on middle-class American investors who turn to independent broker-dealer firms for affordable financial advice and services.

For more information on this proposal, view our member briefing on this issue (member login required). Stay tuned for part two with more details – coming soon!


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