In order to improve financial institutions’ risk management capabilities, the Financial Industry Regulatory Authority has proposed developing a Comprehensive Automated Risk Data System. While FINRA believes that this should make compliance easier to handle, it’s not something that the Securities Industry and Financial Markets Association supports, based on comments that it recently submitted.
SIFMA noted that based on how the proposal is currently constructed, it can’t endorse the regulation, which it says has the potential to be extremely onerous.
“CARDS would be a massive and invasive regulatory undertaking with serious privacy implications for the general public and added technology costs and regulatory burdens for the financial industry,” said Ira Hammerman, executive vice president and general counsel at SIFMA. “[However], we appreciate that FINRA has recognized the scale of this initiative by introducing CARDS as a concept release and seeking the industry’s feedback.”
Regulation may do more harm than good
He added that while the regulation may be meant to make data systems more secure, it may actually do just the opposite, as the CARDS system calls for the development of a new system that collects numerous pieces of information, where they could be accessed by data mining hackers. Furthermore, the financial industry would be forced to devote a lot of resources to it.
“Without more information on the intent and structure of CARDS, we cannot do the necessary analysis to support the proposal,” said Hammerman.
As an alternative, SIFMA suggested that regulators look at what is already in place, as by implementing a new system, it could ultimately duplicate what financial companies already report. Further, should FINRA decide to implement the program despite its objections, it should “continue to work close with the finance industry” in order to address compliance and legal questions that may arise.
Firms devoting millions to compliance
Compliance and risk management is an issue that’s taking on added importance in today’s heightened regulatory climate. Based on a recent survey of 100 banking and capital markets firms, more than half of executives who responded said that their firms are assessing future investment in their compliance programs, according to Accenture’s 2014 Compliance Risk Study. For example, one of the world’s most well-known financial firms recently announced that its compliance and regulatory costs jumped from $444 million in 2012 to nearly $965 million in 2013.
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