The Financial Industry Regulatory Authority (FINRA) has issued a regulatory notice requesting comment on a proposed rule to implement the Comprehensive Automated Risk Data System (CARDS). The system would be designed to enhance investor protection as well as ensure market integrity by identifying high-risk areas and suspicious activities that might not be identified by FINRA via its current surveillance and examination programs. The proposed system would also include a quick response feature.
A Phased-In Rule
The rule proposal would be phased in with the first phase requiring carrying firms or clearing firms (which currently number about 299) to periodically submit specific information that is part of the firms’ books and records relating to their securities accounts and the securities accounts that they clear. The reporting would be undertaken through an automated, standardized format. The second phase would require fully disclosed introducing firms to submit specified account profile-related data elements either directly to FINRA or through a third party. Reporting under the CARDS rule proposal would exclude the collection of personally identifiable information for customers such as account name and address and Social Security number.
Strengthening Investor Confidence
According to a statement issued by FINRA Chairman and CEO Richard Ketchum:
“It is critical that we work together to strengthen investor confidence, and the ultimate purpose of the data and analytic capabilities to be obtained through CARDS is to help protect investors’ bottom line. Without collecting one iota of personally identifiable information, CARDS will help us quickly identify unusual trends and product concentrations — and take swift, responsive action.”
Maintaining Data Security
The FINRA announcement also emphasized that the agency is committed to the highest level of security in any future implementation of CARDS, and that information collected through the program would be sent by way of encrypted transmission, and, after receipt by FINRA, would be encrypted in a way that would not permit anyone to read or interpret the data without access to the proprietary encryption keys. FINRA’s security program is based upon industry best practices and is guided by federal and international standards. It is also compliant with relevant data security and privacy laws and regulations.
Economic Impact Considered
The FINRA notice contains an Interim Economic Impact Assessment that examines anticipated benefits as well as anticipated costs of the proposed rule. Introducing firms would not have any additional reporting obligations in phase 1 and would not incur direct costs associated with the accounts they clear through other firms. FINRA is continuing to collect and review cost-benefit information related to CARDS, and its economic impact analysis is an ongoing development as FINRA gathers more impact data. The comment period expires on December 1, 2014.
David draws on 20+ years’ experience in both legal practice and in business services delivery since his own call to the Bar in 1989. With several years in the startup environment, including as a co-founder in the legal tech space specifically, he brings a unique and timely perspective on the role of data, automation and artificial intelligence in the modern and efficient delivery of services for legal consumers. Having been both a corporate buyer of legal services and a services provider, he identifies the greater efficiency and value that can be achieved in legal operations for corporate buyers especially.
An attorney, David worked for law firms Pinsent Masons and Linklaters in London before moving to New York to join Credit Suisse. As CAO, he helped negotiate & execute the relocation of Credit Suisse into its new NYC global HQ. Subsequently, David directed major global outsourcing, shared sourcing, HR operations & process efficiency initiatives including the digitization of records, the global roll-out of PeopleSoft HRMS & Y2K. David has worked extensively in the UK, US, Philippines, India and China markets in the areas of data management, human resources and business process outsourcing.
Most recently, David has been successfully investing in and serving as an advisory board member of several legal services start-ups including a cloud-based solution for legal process automation and e-filing; and a technology solution for large-scale capture of court and other public data used for litigation analysis, among others.
David graduated from the University of Manchester with Honors in Law and Bar School (College of Legal Education) in London, and has been a member of Middle Temple since 1989. He is the founder and former Chairman of The Global Sourcing Council.
Member: Bar of England & Wales, ABA, NYCBA, ACC, DRI