Under Looming CAT Deadlines, Firms Try to Land on Their Feet
Despite the current global health and market difficulties, the Consolidated Audit Trail (CAT) is still a hot topic in the industry. The SEC has provided Exemptive Relief through a No Action Letter until May 20, 2020, though the participants have requested additional relief. This has impacted a few of our customers who have reacted to the call of the industry and have been aggressively preparing for the original timeline for CAT implementation.
In recent weeks, our Relationship Management and CAT teams have started to receive phone calls and correspondence from firms who may have been following industry news regarding CAT but were potentially expecting additional delays. Others are feeling pressure that they are not as far along in this initiative as their peers. Understandably, some may have based their stance on the multi-year postponements the industry has seen since SEC Rule 613 was approved in 2012. We have also noted that firms may have relied solely on the clearing firms or OMS provider to produce and validate their CAT reporting. In some cases, these firms have come to the realization that, in addition to their designated CAT Reporting Agents (CRAs) having to certify with FINRA, each firm’s IMID must also be certified for the production environment of CAT.
As practitioners, we fully expected the two previously mentioned categories, and we anticipate each to continue into 2022 as the phase implementations of CAT are initiated (Phases 2b, 2c, 2d and 2e). We are also preparing for a few additional waves detailed below:
- Some validation required: These are firms who have made their way through certification with rejection rates of less than 10%. Most of these firms are well positioned to trend above the continued compliance expectation rate of >95%. However, they want to take the next step to validate their CAT data back to the source files. Firms will need to employ dedicated IT resources to this project or consider using a third-party analytic tool such as the Oyster CAT application.
- Ongoing repairs/future reporting preparation needed: Some firms won’t prepare at all, others will think they are prepared but stop short of validating their reporting, and then there will be firms that struggle with the ongoing compliance of CAT repairs or future phased implementations.
- New Action Plans required: Let’s face it, regardless of how prepared a firm is or isn’t, things change, and they may need to adopt a new action plan. That’s where Oyster comes in. Oyster can help you assess how your firm is positioned for CAT readiness, manage your requirements assessment and implementation phases, interface with your own technology providers, and assist you in determining what and how your technology providers will report for you.
Oyster can also assist in testing data scenarios and data linkage, as well as creating an error repair process. Firms can also leverage the Oyster CAT application to gather and analyze reported data and errors.
You can learn more by listening to our Oyster Stew podcast for episodes on what is happening with the CAT and what firms should be doing. Oyster Consulting has the knowledge and experience to support your efforts to achieve CAT compliance. To learn more about how we can help your firm, please give us a call at (804) 965-5400 and a Relationship Manager will be glad to connect you with an Oyster expert.
About the Author: Ralph Magee is a Senior Consultant with over 20 years of experience in the financial services industry. Through a variety of roles with Wachovia Securities, LLC and The Financial Group of Virginia, Ralph gained his expertise in clearing conversions, trading, compliance, and retail brokerage, including his extensive understanding of trading and regulatory reporting of equity and fixed income securities. A member of the Oyster Consulting team since 2010, Ralph has led multifaceted teams in large-scale client remediation and clearing platform conversion-related projects. Ralph has also completed the registration of RIAs, designed and implemented compliance programs, personal trading compliance review systems and national trade suitability review programs. The ability to keep projects on track, within scope and on budget, is one of Ralph’s greatest skills.