The Financial Industry Regulatory Authority, Inc. (FINRA) posts the disciplinary actions it took to its online database. It also posts a monthly summary of these actions, which is a worthwhile read for those in the industry if only to gain insight into FINRA’s regulatory priorities. (Okay, it’s not The New Yorker.) Below I offer a thought on FINRA’s July 2025 edition:
Call me a trade reporting geek, but FINRA’s seven-figure fine of a broker-dealer for inaccurate reporting to the Consolidated Audit Trail (CAT) got my attention. Not because of the infraction – FINRA stated that the broker-dealer failed to reasonably supervise its compliance with its CAT reporting obligations and inaccurately reported 36.6 billion order events to the CAT (more on that below) – but because the SEC recently had its own issues with the CAT. The 11th Circuit Court of Appeals recently held that the SEC’s decision about how the CAT is funded was “arbitrary and capricious” and inconsistent with the Administrative Procedure Act. Query whether the fact that the actual costs to build and to operate the CAT were eight and four times the SEC’s highest estimates, respectively, had something to do with this.
Despite the 11th Circuit’s order, and the many criticisms about the CAT, a broker-dealer’s obligation to report accurate information to the database remains. The FINRA fine underscores that it is important that compliance regularly test its firm’s CAT reports to ensure that it accurately reports what transpired. In my article “A Strategy for Creating an Effective CAT Compliance Program” for the National Society of Compliance Professionals, I offered several thoughts on how to surveil compliance with the CAT’s reporting requirements. While compliance professionals are not expected to be data engineers, a solid understanding their firm’s trade flow and data structure is extremely useful.
Because broker-dealers, registered investment advisers and their representatives want to spend their time serving their clients, not their regulators.
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