Report Card Enhancements—A FINRA Forward Update

By Stephanie Dumont, Executive Vice President and Chief Market Services Officer, FINRA

For more than 25 years, FINRA has offered member firms “report cards” as one type of voluntary compliance support tool. Report cards provide members with secure access to data and analysis that can help them detect potential compliance issues and, in turn, remediate those issues before they become more serious. Member firms generally tell us they view this as a successful component of FINRA’s efforts to help promote compliance. 

Over the years, FINRA has steadily grown the catalog of report cards available to firms. As Robert Cook, our President and CEO, shared when he announced the launch of FINRA Forward, we want to do even more to empower member firm compliance in pursuit of our mission to promote investor protection, market integrity, and vibrant capital markets.

Against that backdrop, I am excited to share an update on our efforts to enhance the report card program—specifically, a new interactive report card interface, expanded report card content, and continued engagement with member firms to inform future enhancements in line with their needs and priorities.

Report Cards: Background and Basics

Report cards were first introduced as a tool to promote compliance in technical areas of market oversight, starting with equity trade reporting. Often in response to member firm interest, FINRA has added to its suite of report card offerings in areas such as best execution, fixed income reporting, corporate financing, and registration. Report cards mostly focus on requirements to timely file specific information in those areas. Last year, FINRA published more than 240,000 report cards covering 34 different topics, which were accessed by more than 2,000 member firms.

FINRA’s report cards are not meant to bring back school memories, and they do not assign grades. Rather, they generally offer two key insights. First, FINRA’s view of specific instances that may signify non-compliance with particular rules. Second, how a firm’s pattern of compliance in a given area compares to that of peers and the membership as a whole. These observations are drawn from FINRA’s sophisticated analytics products, and they reflect FINRA’s drive to share the same data and analytics used by FINRA staff with member firms, as appropriate, to support industry compliance efforts. These observations can be especially helpful where they identify issues or patterns that may not be visible to firms themselves. For one example, the Best Execution Outside-of-the-Inside Report Card informs members about trades they executed with or for a customer that did not appear to get the best available “inside” market price. This report card, like others, provides firms with transparency about surveillance alerts that FINRA generated for the firm, and it also gives members several different measures of peer firm comparison.

More recently, FINRA introduced a variation on report cards, which we refer to as “indicators.” These indicators are designed to share trends and analytic observations with firms in different risk areas—for example, fixed income fair pricing—that may help inform more general assessments of rule compliance when paired with additional information about facts and circumstances. Like report cards, these indicators also provide firms with comparative analysis to let them know how their activity looks relative to peers and the industry.

Both classic report cards and indicators are typically delivered monthly to members, at which time they also can download all of the underlying data.

New Report Card Enhancement Initiatives

Informed by feedback from members, we have taken steps to get firms more content on faster timelines and with interactive or customizable features. 

First, we have been working to deliver new classic report cards. In August, we introduced one about offering activity in municipal bonds. We expect to introduce another new classic report card early next year that relates to compliance with filing requirements for distributions subject to the Securities and Exchange Commission’s Regulation M.

Second, just last month, we launched the first version of an interactive report card interface. This interface is designed to provide firms with data faster—for example, daily rather than monthly—and with customizable parameters, charts, visualizations, and notifications. Ultimately, we see the potential to offer all classic report card content through this new interactive interface. 

We are intentionally taking an incremental approach to the rollout, to ensure that we properly calibrate our delivery of this tool to ongoing member feedback about its design and usefulness. Under this approach, our launch last month included an initial set of data in two content areas related to audit trail reporting.¹ In early rounds of beta testing with firms, we heard very positive feedback, and already since launch, we’ve seen about 200 member firms engage with the new interactive content. Moving forward, we expect to test additional interactive content areas starting early next year.

As we continue to pursue these enhancements, we remain guided by our longstanding approach to report cards as a voluntary compliance tool. Among other things, this means that we plan to keep classic report cards for firms that don’t have a current need for the more active data engagement offered by the new interactive interface. In other words, we are offering firms greater choice of tools to suit their particular compliance needs.

Looking Forward: Member Firm Engagement on Future Enhancements

Member firm feedback has been an essential driver of these enhancements and reflects our broader commitment to building with the membership. We greatly appreciate the substantial time and feedback a diverse member firm working group has already provided to help improve the design and operation of the new interactive interface. Looking ahead, we welcome additional input to help us evaluate new interface features, as well as new content areas that firms would find helpful for FINRA to provide. I encourage any member firms that are interested to email [email protected].