FINRA Reminds Firms of Their Supervisory Responsibilities Relating to CAT

September 17th | 2020

FINRA CAT recently issued Regulatory Notice 20-31, which reminds industry members of their supervisory responsibilities under the CAT Rules and FINRA’s Rule 3110. Reasonably designed supervisory procedures are an essential part of a firm’s supervisory system and FINRA will examine members’ supervisory systems and

written supervisory procedures and, where appropriate, initiate disciplinary action for failure to adopt, implement and enforce reasonably designed supervisory procedures. FINRA’s guidance articulates four minimum requirements that CAT WSPs should address:

  1. Identify the individual, by name or title, responsible for the review of CAT reporting;

  2. Describe specifically what type of review(s) will be conducted;

  3. Specify how often the review(s) will be conducted; and

  4. Describe how the review(s) will be evidenced.

The guidance makes clear that WSPs also must be reasonably designed to ensure that the data reported is transmitted in a timely fashion and that it is complete and accurate. Among other things, firms should review this data to verify that: (1) the data is sent to CAT by 0800 (8:00 a.m. Eastern Time) the following Trading Day; (2) the data is complete with no missing events; and (3) the data is accurate with all of the appropriate data fields reported correctly. It will not be enough for firms to only review rejected data.

CAT WSPs should also address clock synchronization and CAT reporting whether the firm does these activities themselves or through reporting agent or other third party. The clock synchronization section of WSPs should cover, at a minimum:

  1. How and when clocks are synchronized, who is responsible for clock synchronization,

  2. How the firm evidences that clocks have been synchronized, and

  3. How the firm will self-report clock synchronization violations, consistent with the clock synchronization guidance available on the CAT NMS Plan website.

The guidance ends with some recommended steps that firms should consider incorporating into their CAT supervisory systems and written supervisory procedures. But be aware that FINRA is not mandating any particular type or method of supervision, nor is it intending to provide a checklist of steps that if followed would constitute a reasonably designed supervisory system. That burden stays with the firm, and cannot contracted away or otherwise shifted to a third party.

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