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 In an interview with Reuters on Wednesday, Richard Ketchum, chairman
and chief executive of the Financial Industry Regulatory Authority (FINRA),
mentioned several ways data should be better collected and used by
regulators and investors. He plans to present at least one of them
to FINRA's board of governors before he leaves.
"There's no doubt in my mind that the future of regulation is going
to be about data analytics," said Ketchum. "We need to have an
environment where there is more access to more data for regulators
so that we can react more quickly."
A top priority is getting more and better information onto FINRA's
BrokerCheck website, a free database where investors can research
professional histories of brokers and firms. Ketchum said he plans
to discuss this with FINRA's board, although changes would have to
be made through a rulemaking process that could take about a year.
FINRA, which is funded by the industry, also wants to use data to
identify the most problematic brokers and firms, Ketchum said. That
could be done by looking at which ones push risky investments, or
where there are high concentrations of brokers with bad behavior on
their records.
"It's very important for us to know, relatively speaking, who's
active in structured products, who sold a lot a lot of Puerto Rican
bonds," he said.
"The other piece – which we're very focused on now – is the question
of how, out of the 600,000-plus registered advisers, you identify
the 200 to 300 that are really dangerous from the standpoint of
‘likely to kill again' in the short term," he added, in reference to
brokers who repeatedly bilk investors.
Ketchum, 65, has been running FINRA since 2009, having spent much of
his early career at the U.S. Securities and Exchange Commission and
other market regulators. He announced his planned retirement last
October. A replacement has not yet been named.
The use of data in regulation was a recurring theme as Ketchum
discussed FINRA's future role in tracking activity across a growing
number of market participants and venues.
Last year, FINRA decided against proceeding with a controversial
proposal to collect customer account data that Ketchum said would
allow for better analysis of trading activity, asset movements and
other areas of surveillance.
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The industry and some lawmakers balked at the plan, saying it could
infringe on customers' privacy and could become a ripe target for
hackers seeking to steal the identities of investors. Brokerages
also complained that the plan would have been burdensome and costly.
FINRA does not plan to revive the proposal, known as "Comprehensive
Automated Risk Data System," or CARDS, said Ketchum, who expressed
some regret about its failure. But he said another planned database
unveiled by the SEC on Wednesday might help plug the information
gap.
The database, known as a "consolidated audit trail," would track
equity and options trades. It could help reconstruct events like the
2010 flash crash, and "more efficiently identify and investigate
potential misconduct," SEC chair Mary Jo White said in prepared
remarks.
FINRA is one of three organizations bidding to run the database. It
might be able to use information from the audit trail for the same
purposes it had planned for the CARDS database, Ketchum said.
As far as BrokerCheck goes, FINRA will consider displaying the
percentage of brokers with various complaints and regulatory
problems at each firm, Ketchum said.
FINRA is also considering making the underlying data available to
the public or for licensing, he said. The regulator has long
restricted access to the data because of concerns that firms would
use it to mislead investors about competitors, among other reasons,
Ketchum said.
(Reporting by Suzanne Barlyn; Editing by Lauren Tara LaCapra and
Andrew Hay)
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