finra-rightNow that we’ve given you the overview to the FINRA CARDS proposal, it’s now time to look at it in more detail. Because of the magnitude and scope of CARDS, a number of important issues arise that offer an appropriate opportunity to express significant concerns:

Cost v. Benefit

  • FINRA should conduct a very thorough cost-benefit analysis covering potential alternative approaches that may alter some features of the concept proposal yet still provide FINRA with the ability to conduct analysis and improve examination efficiency.
  • FINRA should also identify areas where CARDS overlaps with current requirements and eliminate those requirements prior to implementing CARDS.

Data Privacy & Security

  • Although FINRA has recently indicated that it will not seek Personally Identifiable Information (PII) through CARDS, the exclusion of PII does not alleviate data security and private concerns. The system will still contain account numbers, which can be matched to PII at the firm level. FINRA will effectively have an investor’s entire financial snapshot consolidated in one central system, making it an attractive target for hackers and fraudsters.

Data Standardization

  • FINRA will experience significant challenges in standardizing data collected through CARDS. The lack of standardization across carriers within each group of product providers will be an immense issue that will take enormous resources to address.
  • FINRA should be very cautious to insure that the standardization of data does not have the unintended consequence of reducing the ability of firms to make robust and informed suitability determinations. As every financial advisor knows, data is only one part of the suitability picture and if suitability data is required to be standardized to fit into the CARDS system, this removes important additional context about clients’ situations and needs.

Other Large-Scale Data and Technology Initiatives

  • FINRA is already in the process of developing another large-scale data and technology initiative through the Consolidated Audit Trail (CAT) and has encountered serious delays and challenges.

Quantified Data and Qualified Comments

  • The CARDS concept release requests general comments as well as specific information on eleven various items, such as the anticipated economic impact, infrastructure changes that would be required if CARDS were implemented, feedback on the appropriate frequency of data submission, and various other compliance and operations and technology-related questions. While firms are willing to provide this specific information to FINRA, the current proposal does not provide enough specific information about what types of data FINRA is seeking to collect and how specifically FINRA will use the data it collects through CARDS. As a result, firms are likely unable to provide informed responses to the individual requests at this time.

For (even more!) information on this issue, view our member briefing on our website (member login required). We will submit a comment letter on the Regulatory Notice. Comment letters on the Regulatory Notice are due on or before March 21, 2014.

What are your thoughts on all this? Feel free to let us know in the comments section!


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