Brokerage Industry Girds For Battle Against CARDS

Multiple regulators are already scrutinizing brokerage firms, Hammerman said.
 
“Clients of the brokerage firms do not want [CARDs],” he said. “They do not want the government scrutinizing [and] monitoring their account balances, their transactions and they money movements.”
 
Sifma says Finra hasn’t spelled out in enough detail how it would keep CARDs data secure.
        
To buttress its concerns, Sifma retained consultants from IBM to estimate costs and security risks from CARDS.
 
The IBM analysis estimated that total costs to the industry for the 200 large clearing and carrying firms (which would be the first to implement the program) would be $680 million to build CARDS systems, and $360 million a year to run them.
 
The Sifma-funded study also said Finra may be underestimating its own costs. “Finra has previously estimated its own costs to develop CARDS to be between $8 million and $12 million over a three-year period,” the IBM study said. “Given the average record volumes captured in our survey, costs to store this data alone could approach $50 million annually.”
 
Although Finra has promised not to collect personally identifiable information such as names and tax I.D. numbers, the IBM consultants said CARDS data would still include “sufficient detail for an attacker to reverse engineer an investor’s identity using only a handful of other data points.”
 
“FINRA welcomes comments on this important proposal and takes these comments very seriously,” said Finra spokesman George Smaragdis in an email. “We are keenly focused on the specific issues raised in the comment letters, and we intend to address any and all meaningful risks before moving forward.”
 
The Financial Services Institute, which represents independent broker-dealers, told Finra it should not proceed with CARDs until Finra can collect data on business done directly with product sponsors.
           
Finra is proposing to capture such “check-and-application” business at a later stage.
 
The FSI said in a comment letter that delaying the capture of direct business would result in the collection of “incomplete and potentially misleading information regarding specific firms, financial advisors and branch offices.”
           
Many independent broker-dealers do significant business directly with mutual funds, variable annuities and direct investments.
 
The brokerage industry is also worried that Finra will use CARDS to generate more enforcement cases based on improper data submissions, and will use CARDS data to make suitability determinations without proper context.
 
With CARDS, "alarm bells will be ringing all day long” at Finra, and firms will have to respond,  Hammerman told Financial Advisor.
           
In addition, Sifma and the FSI are concerned about duplicate data-collection systems, and want Finra to consider using the Consolidated Audit Trail (CAT) system to collect some of the information being proposed for CARDS. Finra has already rejected that idea, however.