In September, the Financial Industry Regulatory Authority, Inc. ("FINRA") released a report outlining recent regulatory technology ("RegTech") developments within the securities industry. FINRA noted that securities market participants are exploring and using a variety of RegTech tools to enhance their regulatory compliance efforts. The report can be found in full here.
FINRA outlined several benefits that RegTech offers broker-dealers to further promote regulatory compliance, including enhanced risk management, increased effectiveness and efficiency, and opportunities for enhanced industry collaboration. FINRA highlighted five areas where securities industry participants have incorporated RegTech innovations: surveillance and monitoring, customer identification and anti-money laundering compliance, regulatory intelligence, reporting and risk management and investor risk assessment. Although RegTech offers several potential benefits to firms, FINRA encourages broker-dealers to be cognizant of potential challenges that might arise from the adoption of RegTech tools and services. These include issues with regards to procedures and control systems for supervision of RegTech tools, outsourcing discrete compliance and reporting functions, customer data privacy, and additional security risks. FINRA encourages broker-dealers to conduct their own assessments of the implications of RegTech tools and services, based on their business models and compliance needs.
RegTech may be particularly helpful as FINRA members begin to engage in electronic structured products trading platforms. These platforms, which enable broker-dealers to access structured products from multiple issuers in one location, may have the effect of increasing sales volumes or shortening evaluation times for distributors. Similarly, broker-dealers may rely on educational materials and on tools or analytics provided by such platforms. However, in prior FINRA notices to members, as well as in this report, FINRA cautions that FINRA member firms must have a reasonable basis for relying on outsourced providers and must diligence the outsourced providers.
FINRA has requested comments to the RegTech report by member firms and other interested parties by November 30, 2018.
Originally published in REVERSEinquiries: Volume 1, Issue
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