WASHINGTON -- As FINRA tries to keep pace with an ever-evolving investment market, it is increasingly looking to technologies such as cloud computing, big data and analytics to help it police the broker-dealer community, a top official said on Monday.
Speaking at the Insured Retirement Institute's regulatory conference, Carlo di Florio, FINRA's chief risk officer and head of strategy, outlined a vision of a more nimble organization better able to stay on top of market trends and protect investors.
"We really are focused looking out three to five years on how we can become a more risk-based, data-driven agile regulator," di Florio says.
He says that members of FINRA's board will meet next week for a strategic planning workshop, where they will consider some of the organization's future initiatives such as breaking down regulatory siloes to conduct surveillance across products and across markets.
That project, reliant on FINRA's big data and risk analytics tools, comes as an acknowledgement that products and markets are so thoroughly intertwined that regulators need to take a more holistic approach than they have in the past.
"Just regulating one market doesn't really address the threat to investors," di Florio says.
For instance, FINRA, whose examiners have been taking a hard look at complex products, has been using data analytics applications to identify unusual concentrations or cases when a portfolio is deviating from the stated investment strategy.
Just as FINRA is giving its own operations a technology upgrade, the industry regulator is expecting that the firms it oversees will roll out similar initiatives within their risk and compliance operations. Di Florio says that FINRA examiners grow suspicious when they observe a firm that has made a heavy investment in technology, but limited that investment to the sales side of the practice, cordoned off from the risk management and regulatory compliance units.
"Risk management was a big part of the financial crisis," di Florio says. "There's a lot more regulatory focus and scrutiny on it than there was in the past."
Di Florio also notes that FINRA has made it a high priority to bring obscure financial products out of the shadows and introduce a new level of transparency to areas such as dark pools and fixed-income securities. Similarly, on Monday FINRA began publishing data on resales of restricted corporate debt securities known as 144A transactions, a move that FINRA Executive Vice President Steven Joachim heralds as an effort to "increase transparency in this opaque market."
FINRA is also seeking to broaden its conversations with members of the industry as it refines its regulatory approach and contemplates new and potentially controversial rulemakings.
Through that dialogue, FINRA is signaling that it will consider softening its regulatory approach in instances when members of the industry can demonstrate that a proposed rule would entail a considerable compliance burden or, potentially, threaten the reputation of the business.
Di Florio points to CARDS, a proposed set of automated reporting requirements for FINRA registrants that has raised considerable alarm in the brokerage sector. But FINRA hasn't turned a deaf ear to those concerns -- in response to warnings that investors' personal information could be at risk, FINRA redrew the rule to exclude all personally identifiable information from the system. Then, after hearing complaints about the provision stipulating that registrants must submit the reporting data through a clearing agent, FINRA relaxed that rule so that brokers can directly submit information themselves, or use a clearing agent or another third party.
Di Florio says that that conversation will continue, and in a nod to the worries of the industry, FINRA plans to move incrementally as it advances provisions of the CARDS proposal.
"Folks are really concerned about the implementation impact of CARDS," di Florio says. "As a result, we're going to propose CARDS in stages, not all at one time."
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