You Own the Risk – Have You Done Your FINRA CAT Due Diligence?

By Ralph Magee

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In 2023 regulatory focus around the Consolidated Audit Trail (CAT) included rules requiring industry members to conduct the timely submission of reportable events and corrections, report complete and accurate CAT records, including addressing any file submission or integrity errors, and effectively supervise third-party vendors. Is your firm performing regular and rigorous due diligence while employing a third-party CAT Reporting Agent (CRA)?

Using a CRA to report on behalf of your firm can be cost effective. The long-term costs of using a CRA are often significantly less expensive than the costs to develop and maintain an internal technical team.  However, this reporting structure is not without risk. Firms must implement policies and procedures designed to adequately supervise all aspects of the externally submitted data. As the number of CRAs increases, so does the risk and the additional steps firms will be required to take in order to maintain compliance. 

Where should your firm focus?

Current State Assessments

  • Policy and Procedure review. Does your firm’s policy documentation meet the minimum requirements outlined by FINRA?
  • Order flow mapping. Has your firm comprehensively mapped all client order flow?
  • CRA Agreement review.  Does your firm maintain an agreement with the CRA that provides specifics regarding the functions and responsibilities of each party?
  • Daily CAT Feedback Files. Is your firm experiencing integrity, ingestion, linkage or named errors from FINRA CAT?
  • Monthly Report Cards. How is your firm performing overall, when compared against industry averages and reporting peer groups?
  • Reporting Volume.  Can your firm effectively monitor it’s CAT reporting solely using the raw data files submitted to FINRA CAT?
  • Self-Reporting.  Has your firm Self-Reported erroneous events to FINRA CAT?
  • Knowledge.  Does your firm have internal Subject Matter Expertise to comply with regulatory obligations?

CRA resources

  • Surveillance tools. Does the CRA provide adequate surveillance efficiencies to perform all the related considerations detailed by FINRA?
  • Data validation.  Does the CRA perform source file validations?
  • Mapping records.  Does the CRA publish how internal records and blotters are utilized to report to CAT?
  • Defect lists.  Does the CRA maintain a published list of reporting defects?
  • Communication.  Does the CRA conduct regular meetings to communicate with its customer base?

Trade Reporting Management

  • Internal Communication. Is the risk of using a CRA properly understood by Compliance and the Senior Management?
  • Recent Findings.  Is your firm properly mitigating risk based on the reported findings and effective practices found in FINRA’s 2023 Report on Examination and Risk Monitoring Program?

Our consultants use their deep regulatory experience in trade reporting to help firms achieve their CAT reporting obligations and get the most out of their CAT reporting investment. Leverage our expertise and CAT reporting software to ensure your reporting meets regulatory requirements.

Oyster Consulting’s proprietary Consolidated Audit Trail reporting software includes a CAIS module that can be utilized by firms who do not use the CAT Application for monitoring and evidencing their CAT reporting. Our software consolidates CAT reporting events, error analysis and validation data into a central program. The CAT Application then will identify errors, linkage and gaps between vendor data and CAT reported data.

About The Author
Photo of Ralph Magee

Ralph Magee Jr.

Ralph Magee Jr. is a securities industry professional with over 25 years of experience in the financial services industry. Ralph has led multifaceted teams in large-scale client remediation and clearing platform conversion-related projects. Ralph also uses his expertise in trade reporting providing large broker dealers project management and subject matter expertise related to the Consolidated Audit Trail (CAT).