Representing financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations nationwide.


On Behalf of | Oct 7, 2014 | FINRA Compliance

In Regulatory Notice 14-37, FINRA requested comment on a rule proposal to implement the Consolidated Automated Risk Data System (“CARDS”). The system would collect account information (excluding personally identifiable information), initially, from carrying and clearing firms, and subsequently, from introducing firms, in an automated format. The information to be submitted would include data relating to securities and account transactions, holdings, account profile information, securities reference data and account profile information (related to suitability).

FINRA maintains that CARDS is not duplicative of the SEC’s proposed Consolidated Audit Trail System (“CATS”) and that the customer suitability information to be collected by CARDS (and not CATS) is fundamental to FINRA’s investor protection mission. However, subsequent to the roll-out of CARDS, FINRA proposes to retire the INSITE reporting system (for clearing firms) as well as stock record data collected under the Automated Exam Program.   FINRA is willing to consider eliminating any other duplicative information submissions and it also anticipates that the additional information collected under CARDS would enable it to eliminate certain sweep initiatives.

In addition to seeking general comments on the rule proposal, FINRA has specifically requested comments on fourteen points. Likely, the rule (with any further modifications) will be approved by the SEC. However, it is remains an open question whether the nine month implementation for phase 1 (applicable to clearing and carrying firms) provides sufficient time to implement the data collation or operational restructuring that might be required to provide all the required information in the specified, automated format.

Broker-dealers should carefully review the rule proposal and consider whether it may be appropriate to provide general comments or comments on any of the fourteen enumerated items in the Regulatory Notice. Lewitas Hyman PC would be pleased to provide advice and counsel with respect to any comment letters to FINRA.