Technology Based Innovations for Regulatory Compliance (“RegTech”) in the Securities Industry

Technology Based Innovations for Regulatory Compliance in the Securities Industry outlines recent regulatory technology (RegTech) developments within the securities industry and potential opportunities and implications these technologies may have for broker-dealers.

The report follows an in-depth review conducted by FINRA on the emergence of RegTech tools within the securities industry and summarizes the study’s key findings. Notably, there are five areas identified where industry participants have most prominently leveraged RegTech innovations: surveillance and monitoring, customer identification and antimoney laundering compliance, regulatory intelligence, reporting and risk management and investor risk assessment.

The paper goes on to identify key benefits and risks including potential regulatory and implementation implications for broker-dealer firms to consider as they explore and adopt RegTech tools. Potential benefits that RegTech innovations may offer include better risk management and improved efficiency through automation. Meanwhile, possible regulatory and implementation issues for broker-dealers to consider as they explore RegTech services include supervisory control systems, outsourcing structure and vendor management, customer data privacy, security risks and others.

This white paper provides an initial contribution to our ongoing conversation with broker-dealers, other regulators and key stakeholders to proactively identify any potential benefits or risks that new financial technologies may present to investors, broker-dealers and the securities market. Through this process, FINRA seeks to support innovation that contributes to investor protection and market integrity.

As the securities industry continues to expend time and resources in exploring and adopting RegTech solutions, we encourage stakeholders to actively engage with FINRA on areas where additional guidance or resources may be desired to support adoption of these solutions, consistent with the principles of investor protection and market integrity.

FINRA encourages comments on this paper, including areas where guidance or modifications to FINRA rules may be desired to support adoption of RegTech tools while maintaining investor protection and market integrity.

Comments are requested by November 30, 2018. Member firms and other interested parties can submit their comments using the following methods:

• Emailing comments to [email protected]; or
• Mailing comments in hard copy to: Marcia E. Asquith Office of the Corporate Secretary FINRA 1735 K Street, NW Washington, DC 20006-1506

To help FINRA process comments more efficiently, persons should use only one method to comment on the proposal.

Important Notes: All comments received in response to this paper will be made available to the public on the FINRA website. In general, FINRA will post comments as they are received.

Direct inquiries regarding this paper to Haimera Workie, Senior Director, Office of Emerging Regulatory Issues, at (202) 728-8097; or Kavita Jain, Director, Office of Emerging Regulatory Issues, at (202) 728-8128.

The views, expressions, findings and opinions expressed in the comments on this Web page are solely those of the author(s) and FINRA accepts no responsibility for the content of the comments: