Strategic Compliance Assessments Turn Fire Hoses Into Straws


Financial Industry Regulatory Authority (FINRA) examiners are asking Consolidated Audit Trail (CAT) questions in broker-dealer annual exams this year, which in turn are raising concerns internally about how best to respond and how to comply.

As outlined in its exam priorities released in early 2021, FINRA’s Examinations and Risk Monitoring program includes a focus on compliance with CAT. While it is no secret that CAT compliance reporting was coming, for firms new to regulatory reporting, or without a holistic framework in place to manage risk management and compliance practices, FINRA examiners’ CAT compliance questions can feel like drinking from a fire hose – trying to take on a large set of new requirements at once.

CAT Regulation Requirements

Under the CAT regulations, all member firms that receive or originate orders in National Market System (NMS) stocks, over-the-counter (OTC) equity securities or listed options must report certain data to CAT. In addition, all firm proprietary trading activity is subject to CAT reporting regardless of the size or type of firm or type of trading activity. Firms must develop policies to comply with CAT, and such policies should (i) identify the responsible parties for timely reporting and (ii) detail the firm’s processes for confirming accuracy of data posted to the CAT Reporter Portal.

Holistic Framework Key to Compliance Success

At Patomak Global Partners, we see examiners regularly looking at firms’ governance framework including documentation, controls, escalation, technology, data integrity controls, and testing for timeliness, completeness and accuracy.

With regular regulatory examinations and oversight often involving a terabyte of reportable data, and a short turn-around to meet ongoing reporting obligations, the regulators remain laser-focused on issue detection, identifying key stakeholders, escalation communication processes, and training.

A firm that undertakes a strategic assessment of its risk management and compliance risks and solutions can create a customized holistic framework that allows the business to leverage existing tools it has in house to respond FINRA examiners, and concurrently develop a sustainable process to meet its reporting obligations.

A strategic assessment means instead of drinking from a fire hose, compliance staff might find themselves with a bit of time on their hands to enjoy a bit of summer and sip lemonade through a straw instead.

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