NEW YORK (Reuters) – Wall Street’s industry-funded watchdog is developing a new rule that would require clearing firms to regularly provide it with data about brokerage transactions, U.S. regulators said on Tuesday.
The Financial Industry Regulatory Authority would use that information to conduct more robust examinations of the securities brokerage industry, said Richard Ketchum, the regulator’s chairman and chief executive.
FINRA will unveil the plan in a draft proposal late this year or in January, said Ketchum, speaking at the Securities Industry and Financial Markets Association annual meeting.
Such a requirement could ultimately boost existing efforts at FINRA to amass and analyze data about brokerages in efforts to check up on their operations. FINRA, which oversees more than 4,190 brokerages and 635,000 brokers, regularly examines firms to see if they are complying with industry rules.
In recent years, FINRA has been requesting increasing data from brokerage firms – everything from customers’ account histories to procedures for supervising brokers – so that its examiners can conduct more targeted reviews when visiting firms in person. The effort has led to more efficiency among examiners, the regulator has said, who can then target their in-person efforts where they are needed most, such as at some branch offices where risky practices among staff may be prevalent.
Amassing even more data from clearing firms would bolster FINRA’s efforts and ensure that examiners are even more well-versed in a firm’s business, Ketchum said.
Clearing firm data could help FINRA track product sales, customer accounts, and branch office activity, among other things, Ketchum told reporters after his remarks.
FINRA already receives some data from clearing firms for its brokerage examinations, but it is provided voluntarily, Ketchum said. It also arrives in formats that vary among firms, making it difficult for FINRA to analyze and search for patterns and trends across the industry, he told reporters.
“If we can regulate it and create consistent data across all clearing firms, then we have the ability to understand what activity a person may be doing at one firm versus another,” Ketchum said.
FINRA is uncertain at this point at what frequency clearing firms would have to provide the data if such a rule was approved, Ketchum said. “It could possibly be provided even on a daily basis,” he said.
FINRA will ask for input from the industry when it releases its draft proposal to get a better understanding of “what makes sense,” Ketchum said. Any rule would require approval from the U.S. Securities and Exchange Commission.
The regulator’s push for clearing firm data mirror recent efforts by the SEC to mine similar details. A recent SEC review helped it uncover a “wide range” of sales practice abuses at brokerages, including unsuitable advice and rapid trading to gin up commissions, the agency’s head recently said.
(Reporting by Suzanne Barlyn- Editing by Chris Reese)
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