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FINRA finds happy regulatory medium tough to maintain

It's not easy being FINRA. On one hand, the Financial Industry Regulatory Authority Inc. is widely criticized for not being tough enough in going after stockbroker malpractice. On the other, it is under fire for some of its proposals for trying to improve how it fulfills its regulatory responsibilities. What's a body to do?

The issue drawing particular fire lately is FINRA's proposed initiative called CARDS -- the Comprehensive Automated Risk Data System. Officials say CARDS is intended to improve data collection to allow regulators to act more quickly to pick out bad-apple brokers and minimize risk of financial damage. But critics say the amount and kind of data FINRA wants amounts to an invasion of privacy.

The overarching objective of CARDS is certainly a laudable one. Anyone who believes they have suffered significant financial investment loss due to a broker's failure to exercise a proper standard of care of client assets has a right to seek compensation for those losses and should be in touch with an attorney. Proving that negligence or perhaps something more nefarious was behind a loss requires data and an understanding of how to use it.

According to FINRA, CARDS would serve as a complement to the Risk Control Assessment. That's a survey that brokers and investment advisory firms submit reflecting firm-specific data about transactions. CARDS calls for getting more granular account information and providing it in a way to FINRA that would make it easier to flag dubious activities, such as repeated shady deals by brokers as they might move from firm to firm.

CARDS is only a proposal at this time. It's currently going through a comment period ahead of possible adoption. Some comments have been offered in support of the program, but others call it too much. One comment posted on FINRA's website says, "The government already has their nose too far under my tent."

What do you think?

Source: The Wall Street Journal, Money Beat, "Finra Wants to Get Too Invasive for Some Members," Matthias Rieker, Feb. 20, 2014 

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