FINRA Develops System To Red Flag Customer Accounts
The Financial Industry Regulatory Authority is seeking comments about its Comprehensive Automatic Risk Data System (CARDS) that would allow it to generate information about customer accounts at broker-dealers to identify “red flags” involving business and sales misconduct.
CARDS would require clearing firms and self-clearing firms to regularly report turn in, in standardized, automated format, specific data about customer accounts and the customer accounts of each member account that they clear for. FINRA would use this information to conduct analytics so it can identify excessive commissions, churning, markups, pump and dump scams, and mutual fund switches. The information provided would also be used to examine broker-dealers.
According to FINRA’s notice about CARDS, this type of automated reporting would get rid of some of the one-off reporting that brokerage firms now have to engage in. FINRA could also use this data to compare broker-dealers and identify trends and patterns in the securities industry.
CARDS is part of FINRA’s efforts to expand surveillance. According to FINRA, it conducted a successful trial of CARDS earlier in 2013 involving 300 introducing firms.
CARDS would enable FINRA to monitor the deposit of large blocks of stock by investor relations firms and fraudsters in corporate hijackings and other illegal reverse merger transactions involving the transfer of unregistered securities. Comparative data analysis will allow such monitoring by FINRA even where securities violators use multiple brokerage-firms to conceal their activities.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit www.securitieslawyer101.com. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.
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