New Technology Will Lead to Enhanced Efficiencies and Reduced Compliance Costs for Firms
WASHINGTON—FINRA today announced details of a multi-phased effort to overhaul its registration and disclosure programs, including the Central Registration Depository (CRD)—the central licensing and registration system that FINRA operates for the U.S. securities industry and its regulators and that provides the backbone of BrokerCheck. The first phase of the transformation—a new WebCRD interface that highlights important information or activities requiring immediate attention of firms, branches and individuals—goes into effect June 30.
The transformation aims to increase the utility and efficiency of the registration and disclosure process for firms, investors and regulators, as well as to reduce compliance costs for firms. FINRA’s Board of Governors has approved moving forward with the project, which FINRA expects to complete in 2021.
"This important initiative will strengthen an essential function of the securities industry," said FINRA President and CEO Robert W. Cook. "The transformation will allow FINRA to develop systems that help firms effectively maintain compliance programs and reduce compliance costs, while continuing to operate and enhance BrokerCheck as an essential tool for investors."
“The CRD is an important tool for the financial services industry, regulators, and investors. We applaud FINRA for undertaking this initiative to upgrade the system’s operations,” said Joseph Borg, President of the North American Securities Administrators Association (NASAA) and Director of the Alabama Securities Commission.
FINRA developed and operates several systems that support registration and disclosure requirements for the securities industry, and works closely with the SEC and NASAA on policy and program requirements for the systems. Securities firms use these systems to register and maintain the records of associated persons who operate within the securities industry, and investors use them—through BrokerCheck—to research the professional backgrounds of brokers and brokerage firms. These registration systems are essential to the operation of the securities industry, and experience consistently high usage volume.
The redeveloped registration systems will facilitate more efficient interaction for users and leverage information from other FINRA regulatory programs, resulting in a more accurate and complete set of information about registered individuals, branches and firms—enhancing firm compliance programs and reducing compliance costs. The transformation also allows FINRA to leverage the information security benefits of cloud-based technology, and architect systems that address dangers associated with current and anticipated cyber threats and risks.
The changes are being made in response to feedback FINRA has received through various channels during its ongoing organizational improvement initiative—FINRA360—including via recommendations from firms in response to FINRA’s 2017 Special Notice on Engagement. FINRA is working closely with member firms throughout the multi-year project, and will continue to solicit their input and feedback to ensure the enhanced systems are meeting the industry’s needs.
More information about the registration system transformation is available at www.finra.org/newcrd.
Background of the Registration Systems
The systems that support registration and disclosure requirements in the securities industry include the following:
- Central Registration Depository (CRD) – maintains the registration records of close to 3,800 SEC-registered broker-dealers (more than 3,700 are member firms) and over 630,000 FINRA-registered professionals
- Web CRD – the online registration system that allows the securities industry, federal and state regulators, and securities exchanges to interact with CRD
- Investment Adviser Registration Depository (IARD) – the registration system for investment advisors and their federal and state regulators
- Investment Advisor Public Disclosure (IAPD) – the public disclosure system for investment advisers
- Private Fund Reporting Depository (PFRD) – the SEC private fund reporting system
- BrokerCheck – a free online tool where investors research the professional backgrounds of brokers and brokerage firms, as well as investment adviser firms and advisers
FINRA operates CRD and works with the SEC and NASAA on policy and program requirements for the program. FINRA operates and maintains the WebCRD system in accordance with these requirements. FINRA operates and maintains the BrokerCheck system to provide CRD-based information to investors and other users. In addition, FINRA operates IARD, IAPD and PFRD under contract with the SEC. Throughout the envisioned transformation, FINRA will collaborate closely with the SEC, NASAA and state regulators to ensure alignment with their regulatory programs, operational requirements and contractual commitments.
Reasons for System Overhaul
These registration systems are essential to the operation of the securities industry, and experience consistently high usage volume (e.g., in October 2017, Web CRD processed its 50 millionth registration since launching in 1999, and throughout 2017 processed over 2.1 million filings, more than 60,000 disclosure filings, and over 285,000 fingerprint cards). FINRA has regularly enhanced these applications to address regulatory requirements and the needs of the industry over time, but the technology upon which the systems were built now creates development and maintenance challenges. These factors limit opportunities to expand the registration systems in response to regulatory changes and industry needs.
Benefits of the Registration Systems Transformation Project
The changes will facilitate more efficient interaction for users and leverage information from other FINRA regulatory programs, resulting in a more accurate and complete set of information about registered individuals, branches and firms—enhancing firm compliance programs and reducing compliance costs. The transformation also allows FINRA to leverage the information security benefits of cloud-based technology, and architect systems that address dangers associated with current and anticipated cyber threats and risks.
Scope of Multi-Phase Transformation Project
FINRA is currently running a pilot program of the first step of the multi-phased transformation—replacing functionality in Web CRD with a new user interface focused on important information and activities that firms, branches and individuals should address immediately. The new functionality becomes available for all firms on June 30. Other near-term enhancements include overhauling functionality for firm staff to review information about an individual, branch or firm, and implementing an automated feature for notifying registered representatives when a new Uniform Termination Notice for Securities Industry Registration (Form U5) is available for review.
Longer-term, FINRA plans to revamp the process for completing required submissions, including by allowing efficient, paperless information updates without requiring full form submissions, expanding the ability for firms to delegate work and collaborate with registered staff, introducing e-signature functionality, and developing capabilities for bulk transactions (e.g., filings that impact many individuals and firms). In addition, FINRA plans to include as part of the system transformation customized reporting options for users.
FINRA is dedicated to investor protection and market integrity. It regulates one critical part of the securities industry – brokerage firms doing business with the public in the United States. FINRA, overseen by the SEC, writes rules, examines for and enforces compliance with FINRA rules and federal securities laws, registers broker-dealer personnel and offers them education and training, and informs the investing public. In addition, FINRA provides surveillance and other regulatory services for equities and options markets, as well as trade reporting and other industry utilities. FINRA also administers a dispute resolution forum for investors and brokerage firms and their registered employees. For more information, visit www.finra.org.