Emmanuel Olaoye, Thomson Reuters
As the Financial Industry Regulatory Authority embraces the cloud and expands its monitoring technology for the big data era, firms may feel pressure to increase their own capacity to provide data.
As the Financial Industry Regulatory Authority expands its monitoring technology for the big-data era, firms may feel pressure to increase their own capacity to provide data. Some compliance experts are questioning, however, whether the regulator’s emphasis on technology will be effective in rooting out compliance deficiencies and wrongdoing, and suggest concerns over issues such as data privacy may make firms wary.
FINRA, the industry funded brokerage regulator, is moving its market-surveillance technology to “the cloud” in a push that began in 2014 and will carry on into next year.
Moving its data operations to third-party “cloud computing” data centers will allow FINRA’s analysts to more efficiently store and retrieve, and better analyze, the vast amounts of market data that FINRA collects, said FINRA Chief Executive Rick Ketchum. For example, the regulator analyzes about 20 billion market transactions a day, more than seven times the number of likes and status updates posted by Facebook users.
Money that FINRA collects from fines, which it is barred from using on staff or other operations, has helped fund the tech push. FINRA’s overall spending on computer operations and data communications rose to $40 million in 2014, from $31.2 million the year before.
The regulator is also using enhanced data analytics to identify exam targets based on risk factors in their business models, and to narrow the focus of individual exams, FINRA spokesman George Smaragdis said.
Said Ketchum, in a letter last year on FINRA exam priorities: “All the data that we’re gathering and analyzing is also helping us see effective and sometimes ineffective compliance practices.”
Mitch Avnet, a founding partner of the consultancy Compliance Risk Concepts, said: “The fact that a regulator is adding to their technology budget to get better information will hopefully send firms themselves to invest in technology ... to get better information in terms of their supervision and compliance.”
Firms regulated by FINRA face pressure to keep up with the technological advances. “You want to follow on from what [FINRA] is doing,” said Linda Riefberg, a former chief counsel in FINRA’s enforcement division and now a partner at the law firm Cozen O’Connor Riefberg. “If they come in and they ask for a lot of trading records, it is going to take you the resources to deliver it and you will have to analyze it.”
Mitch Avnet, a founding partner of the consultancy Compliance Risk Concepts, said: “The fact that a regulator is adding to their technology budget to get better information will hopefully send firms themselves to invest in technology ... to get better information in terms of their supervision and compliance.”
Firms can continue to supply data to FINRA as they are accustomed, through an electronic-exchange software application, Smaragdis said.
The process allows for them to securely submit, manage and track FINRA information requests, he said. An industry veteran who has been a vocal critic of Wall Street regulation questioned whether FINRA’s tech emphasis will yield substantive improvements in prevention or enforcement.
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