2021 was busy for the Consolidated Audit Trail (CAT). The year started off with the publication of the Full Customer and Account Information (CAIS) Technical Specifications. Two additional phased implementations, Phase 2c and 2d, were initiated and the industry has now completed the transactional implementation of CAT. So, what’s next and what should firms be focused on?
Phase 2d Clean-up
As with all previous phases of CAT, there is still work to be completed to clean up defective reporting related to the new events and requirements of Phase 2d. Firms should maintain a list of these defects and track them through resolution. FINRA CAT publishes a list of known issues and Firm compliance departments should have open case numbers related to any of these items. Besides the published list, Oyster has observed the following larger scale issues.
- Market making firms are experiencing linkage issues on quote-related events
- Out-of-sequence issues related to Too Late to Cancel (TLTC) messages
- Defective reporting from CAT Reporting Agents (CRAs)
CAIS Testing and implementation
Phase 2e (Full CAIS) has a compliance date of July 11, 2022. At the end of January 2022, FINRA CAT will open the CAIS test environment. Firms are encouraged to take advantage of this testing window with a goal of transitioning their data schema to the Full CAIS version in late April of 2022. Firm identifiers must be submitted in the new schema format on or before the compliance date of Phase 2e. Submitting early will provide a smoother transition. Firms should also make sure they are represented on industry call or advocacy group presentations. There are still a lot of open concerns related to reporting customer data, and there are sure to be last minute updates between now and full implementation.
Policy and Reporting Validation
The industry completely implemented transactional CAT reporting as of December 13, 2021, so Industry Members should expect more regulatory sweeps of their CAT reports. Completeness and accuracy of reporting will certainly be the main focus and should not be overlooked. Based on published statistics, most firms are demonstrating error rates far below the minimum requirement, but the validations performed by FINRA CAT don’t provide the entire picture. There could be transactions that should result in a CAT report which are not being reported or an acceptable value which is being reported and accepted, but not accurate. Oyster has often found that accuracy issues can be compounded when Firms utilize multiple CRAs.
Firms should also update their policies and procedures to reflect the current activities being performed to ensure timeliness, completeness, and accuracy of CAT reporting. The minimum requirements for CAT supervision can be found in Regulatory Notice 20-31 where FINRA reminds firms of their Supervisory responsibilities related to CAT. It is important that firms are cognizant of when policy updates are related to an industry phased implementation such as CAT and may not always align with periodic internal calendar review reminders.
In late October, FINRA published their Sanction Guidelines. It has gone largely unnoticed that FINRA specifically included CAT in section VIII. Quality of Markets. The is in lockstep with the Notice to Members publication and specifically addresses late reporting, failure to report and inaccurate reporting. The guideline provides principal considerations for sanctions as well as a monetary basis for actions. Additional details on suspension, bar or other sanctions are provided for firms as well as individuals.
It is well documented that FINRA expects firms to be proactive towards CAT reporting. 2022 brings an opportunity for firms to seek external advice and experience. Subjecting your Written Policies and Procedures, Desk Procedures and your CAT reporting to external validation can be an attractive risk/reward proposal.
Our consultants use their deep regulatory experience in trade reporting with our Oyster Solutions CAT reporting application to enable firms to achieve their CAT reporting obligations. Oyster’s CAT Application consolidates CAT reporting events, error analysis and validation data into a central program, where it will identify errors, linkage and gaps between vendor data and CAT reported data. Click here to learn more about how Oyster can help your firm with its CAT reporting requirements or to request a demo of our reporting application.