WASHINGTON -- The years following the 2008 financial meltdown, the Bernie Madoff scandal and the flash crash have taken their toll on investor confidence, and FINRA is pledging to redouble its efforts to restore faith in the markets through a more vigorous examination and enforcement regime.
At the same time, the agency has also announced the easing of a data collection provision that critics worried would increase firms' compliance costs.
The self-regulatory organization will work to address a "crisis in confidence among investors" with an examination regime that makes better use of data and technology to more quickly spot and discipline rogue brokers, Chairman and CEO Richard Ketchum said during remarks at FINRA's annual conference here on Monday.
"Investors have witnessed a stream of events over the better period of a decade that have left them with a perception that our capital markets have fundamentally changed, and not for the better. To many investors, the markets have become complex to the point of seeming inaccessible," Ketchum said. "FINRA is determined to be a key engine in restoring trust in the securities markets."
A cornerstone of those efforts is FINRA's risk-based examination program, through which the regulator aims to focus its resources on the industry players whose operations hold the greatest potential for harm to investors.
Ketchum touted the importance of FINRA's controversial data-collection program known as CARDS as the next critical phase of the risk-based exams. Through CARDS, FINRA would automatically collect information from firms on accounts, transactions and other aspects of their books and records.
But Ketchum also announced on Monday that FINRA would drop the requirement that brokers submit their CARDS information through a clearing house, a provision that some had worried would add significant compliance costs. Going forward, he said, firms will be able to use a clearing firm, a service bureau or submit their information directly.
'NEED TO GET THIS RIGHT'
In defending the program, Ketchum argued that the collection of that information will enable FINRA's examiners to better focus their resources on problematic firms, and to sort through more of the review process ahead of actually visiting a firm for an on-site inspection.
"CARDS enables a more focused, less arduous exam process and vastly improves the speed with which we can quickly intervene," Ketchum said.
At the same time, Ketchum acknowledged the concerns that many industry members have raised, including worries about the collection of investors' personally identifiable information, which FINRA has since excluded from the CARDS program.
"We need to get this right," he said, urging members of the industry to continue to supply feedback to help FINRA further refine its data-collection proposal. "Your input is critical to us getting CARDS right."
But Ketchum is determined that a program like CARDS, which is bound up in a vision for a more technically savvy, data-driven approach to industry regulation, is essential to FINRA's mission of restoring investor trust in the markets. Not proactively collecting the data that could help FINRA more quickly catch a bad actor and mitigate investor harm would be "unconscionable," Ketchum said.
"We need to take our vigilance to the next level and leverage the advanced technology now at our disposal," he said. "We need investors to understand that we are monitoring the markets like hawks."
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