At this week’s Annual SIFMA Law and Compliance meeting, FINRA CEO Rick Ketchum provided a number of candid and pointed comments in a wide-ranging and no-holds-barred interview conducted by long-time senior compliance official Dave DeMuro.
The interview’s headline topic was FINRA’s concept proposal issued late last year regarding the Comprehensive Automated Risk Data System, or “CARDS.” As proposed, CARDS would require clearing firms (on behalf of introducing firms) and self-clearing firms to regularly submit, in an automated, standardized format, specific information about their customers’ accounts and the customer accounts of each member firm for which they clear.
CARDS has been the subject of extensive comments by everyone from SIFMA, on behalf of the broker-dealer industry, to the ACLU, which expressed concerns about the risk of exposing personal identifying information (“PII”). Ketchum assured the industry audience that FINRA would protect the information submitted via CARDS: “you can’t be a regulator without effectively managing data. [We] need to treat data carefully.” He said that FINRA would not be accessing PII, and DeMuro confirmed that was so, since FINRA recently published an alteration to CARDS that retrenched on the original proposal’s access to such data. Ketchum also addressed the concern that CARDs would expose clearing firms to possible enforcement actions if they are compelled to reveal to FINRA information they have that might indicate possible compliance violations by their introducing firms. He gave some assurance that FINRA would not hold clearing firms liable for the conduct of their introducing firms if they choose not to routinely use that data to supervise their introducing firms’ sales practices.
Ketchum responded to recent criticisms by plaintiffs’ attorneys about the lack of useful information on BrokerCheck by stating, “It’s very important to me that there be information that’s useful to investors. It’s absolutely critical that BrokerCheck be an effective resource.” A big issue for Ketchum is investors’ infrequent use of BrokerCheck. “The real crime is that more of us use Yelp to find out where we’re going to eat on a trip to Chicago than use BrokerCheck before investing $500,000 with a broker.”
Ketchum commented on the proposed FINRA rule which would require brokers to disclose recruitment compensation paid to them as an incentive to move to a new firm. Asked if the rule was intrusive, Ketchum said, “Last I looked, people do better with disclosure than without,” and he suggested that would not be a bad thing for a customer to be able to have a conversation with a broker about why he or she moved. He said that there are real-world implications for moves to other firms, including changes in fees, and portability of investments.
In addition to asking about those timely issues, DeMuro discussed some perennial items with Ketchum:
Complex products – Ketchum said that while firms have become much better at reviewing their products, they are less successful at training their salespeople and communicating the features, advantages and disadvantages of complex products with customers.
FINRA authority over investment advisers – Ketchum acknowledged that the legislative environment is not currently hospitable to the idea, but colorfully described the problem of infrequent exams of advisers: “It’s not a good environment where you can meet your true love, get married, have a child and have her reach her confirmation or Bat Mitzvah and your IA still hasn’t been examined.”
Self-reporting – Ketchum said that FINRA would not let a member’s early report of a possible problem get in the way of the firm completing its internal investigation.