Tech keeps FINRA on top of the market
Connecting state and local government leaders
Besides its own investment in technology, the Financial Industry Regulatory Authority examines how innovative technologies can help companies meet their regulatory compliance obligations.
To keep up with the securities industry it monitors, the Financial Industry Regulatory Authority began to move applications to the cloud in 2014 -- starting with its Market Regulation department, which monitors 50 billion transactions a day.
“Migrating to the cloud provides us significant scale and data elasticity for our analytics,” said Kavita Jain, director of the Office of Emerging Regulatory Issues in FINRA’s Department of Risk and Strategy. “Analysts are empowered to call on data now as needed and they can access the data in significantly shorter time periods so their time can be used for high efficient, value-added tasks.”
The use of the cloud also allows FINRA to be able to scale its needs depending on the level of activity in the market. Speaking at the Oct. 4 Commodity Futures Trading Commission FinTech conference, Jain said, “We don’t need to invest in excessive hardware capacity or end up with limited capacity during times with excess volume.”
In fact, in the first six months of 2018, FINRA processed an unprecedented amount of market activity, averaging a record 57.9 billion electronic records per day during the period — a 62-percent increase over the average daily volume in 2017. "FINRA’s pioneering cloud strategy has allowed it to handle the record-setting volume smoothly while performing vigorous regulatory oversight of securities trading," agency officials said in a July statement.
The agency has also deployed big data analytics, machine learning and natural language processing to look for indications of more than 300 potential threat scenarios, including market manipulation, insider trading or other violations, the agency said.
To stay ahead of how financial intuitions are using emerging technology, FINRA established the Innovation Outreach Initiative in June 2017 to promote an ongoing dialogue with the industry on financial technology developments. Those conversations help FINRA better assess the potential impact of innovations on investors, firms and securities markets and help it understand how its rules and programs interact with technology innovations. Through the initiative, the agency can better track evolving FinTech developments and support innovation while protecting investors and maintaining market integrity.
As part of its work in this area, FINRA released a white paper on distributed ledger technology in January 2017. The report guides industry through potential impacts and applications for the securities industry and factors to consider when implementing blockchain technology.
In September 2018, FINRA released a report on regulatory technology developments for the securities industry that highlighted five areas where industry has most prominently leveraged regulatory technology, or RegTech: surveillance and monitoring, customer identification and anti-money laundering compliance, regulatory intelligence, reporting and risk management and investor risk assessment.
RegTech innovations may offer include better risk management and improved efficiency through automation, FINRA said, but could raise issues related supervisory control systems, outsourcing structure and vendor management, customer data privacy, security risks and others.
“Regulatory technology is playing an ever-increasing role for broker dealers and regulators must ensure they are keeping pace with industry innovations,” said Haimera Workie, Senior Director, Office of Emerging Regulatory Issues. “FINRA’s report provides an initial contribution to our ongoing conversation with market participants about how RegTech tools can help enhance compliance efforts in order to keep markets fair and investors safe.”
FINRA is accepting public comments on the RegTech report until Nov. 30.