For the past couple months, the Financial Industry Regulatory Authority (FINRA) has been taking a bruising from investor advocates who support greater oversight over brokers and broker-dealers. Recently, FINRA’s climb-down on obligatory disclosure of incentives and bonuses by brokers changing firms, followed by revelations in the New York Times over the agency’s murky process for expunging broker complaints, have ignited a new round of criticism of FINRA’s supposed “bias” toward the financial industry it is mandated to preside over. But this week, FINRA released new guidelines for a computerized tracking system that appear to be a big step in the right direction.
The system, Comprehensive Automated Risk Data System or “CARDS,” is an attempt by the financial industry watchdog to leverage the power of big data and computer analytics in order to more carefully monitor balances and transactions in brokerage accounts. CARDS would give FINRA a sweeping and unprecedented peek into the activities of brokers and broker-dealers, and alert the agency to any suspect trading or misconduct. This proposal can only be good news for customers, since it would add a new layer of oversight to how their accounts are being handled. Customers themselves are the first line of defense against broker misconduct. By reviewing their statements for illicit trading or investment fraud, customers may be able to ferret out problems before they get out of hand. But most retail investors are investment novices who have trouble interpreting their financial statements; and even if they noticed something fishy going on in their accounts, they are often too intimidated to confront their brokers directly. CARDS would ameliorate this situation by adding FINRA’s automated monitoring of customer brokerage accounts to the mix. It would also put brokers in the mindset of being watched, thus hopefully discouraging misconduct before it begins. Meanwhile, the SEC has been developing a massive computerized system, called the consolidated audit trail, to follow all trades in U.S. stock and options markets.
Broker-dealers have long utilized the vast power of technology to trade at incredible volumes and speeds. It’s about time the regulators caught up, and used that power to clean up the markets.
If you or anyone you know has been the victim of investment fraud or broker misconduct, please contact us immediately for a free consultation at 1-855-462-3330 or via email by clicking here.