Securities Litigation

A little over one year ago, the Financial Industry Regulatory Authority (FINRA) announced a proposal to increase substantially its collection of brokerage data. That proposal, named the Comprehensive Automated Risk Data System (CARDS), sought to take advantage of "technological advances [that] c[ould have] be[en] leveraged to obtain, store, manage and access large quantities of data to identify and quickly respond to potentially fraudulent and abusive behavior." Almost immediately upon its announcement of the proposal, FINRA faced industry-wide backlash centered primarily on data-security and regulatory-cost concerns. For more information about the program and the industry's initial reaction, see my blog post from October 6, 2014, discussing the announcement. It appears that the concerns voiced by industry participants may have hit home: the executive vice president of regulatory operations for FINRA announced on November 3rd that the CARDS program would not be moving forward, but that data collection and analysis would remain a priority. She further stated that the self-regulator would be focused on identifying techniques for capturing data through its examination methods. The CARDS program was certainly well-intentioned: given that such tremendous amounts of data can provide significant advantages in detecting trends and fraudulent activities, capturing the benefits of this information is expectably a top priority for FINRA. Conversely, and in light of the ongoing importance placed on cyber-security and the fact that cyber-security remains one of the most serious issues faced by the financial industry, concerns were certainly warranted over FINRA's concentrated compilation of brokerage data to such a great extent. With FINRA's CARDS out of the picture, FINRA and other industry participants are free to discuss and develop a new proposal that balances the benefits of better analytical tools against the drawbacks attributable to security vulnerabilities. In any event, and regardless of the re-worked proposal that will be developed in the future, FINRA should be applauded for having followed its comment process and responding appropriately.