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Comprehensive Automated Risk Data System (CARDS) Definition

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What is the ‘Comprehensive Automated Risk Data System (CARDS)’

The Comprehensive Automated Risk Data System (CARDS) was a FINRA initiative to improve account information reporting that was abandoned in 2015. The Financial Industry Regulatory Authority effort would have collected vast amounts of customer account information from introducing brokers in an effort to improve its data use skills and analytics to become “a smarter, more efficient” regulator, said one FINRA official. The effort, and its huge compliance, data management and time burden proved immensely unpopular with brokers, clearing firms, technology providers, as well as with industry groups, such as the Securities Industry and Financial Markets Association (SIFMA) and the Financial Services Institute (FSI). 

Breaking Down ‘Comprehensive Automated Risk Data System (CARDS)’

The CARDS initiative, meant to be an investor-harm monitoring program, was proposed in 2013. The CARDS roll-out went as far as a public comment period and trials of the data collection process, but was later abandoned after facing significant resistance. Industry watchers believed that in the effort FINRA was a bit too far ahead of the desires and attitudes of its membership as it relates to investor protection. Critics within the financial community believed that CARDS reporting would have added significant cost to doing business.

Comprehensive Automated Risk Data System Criticism

As a part of CARDS, FINRA (an independent, nonprofit securities regulator) would have regularly collected customer and product information, as well as account activity from its more than 4,100 member firms. FINRA, which polices its members, believed that CARDS would have enabled running analytics on the collected data to enable it to more quickly flag brokerages engaging in sales misconduct. Some FINRA member firms worried that it would be a security risk to allow the regulator to access so much client information, though the organization has noted that it will not hold individual client names, addresses, Social Security Numbers or other personally identifiable information. In the end, the industry took the position that the data collection and management costs and oversight burden would dwarf any possible benefits.

Comprehensive Automated Risk Data System in Practice

A CARDS rollout in its first phase would have provided for an increase in FINRA’s ability to further protect investors by “utilizing automated analytics on brokerage data to identify problematic sales practice activity, ” according to FINRA. The regulator then planned to analyze the data it collected before digging deeper by performing on-site examinations on member firms. Those data examinations would have the purpose of identifying risks earlier and hopefully eliminating the need for costly and onerous on-site exams. For more, see FINRA’s 2013 CARDS proposal comment period Regulatory Notice.

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