Financial Advisor IQ: Call Comes for SEC to Scrap Personal Data Requirement from Controversial CAT Database

The American Securities Association is lobbying for specific improvements to the Consolidated Audit Trail that the group says should ensure regulators have the ability to surveil the market without collecting the sensitive personal information of virtually every American investor.

The ASA, which represents financial services companies, says in a letter it sent to the SEC Monday that personally identifiable information should be excluded from the CAT. The group also wants the regulator to officially name Finra as the CAT operator instead of an unregulated third party.

The CAT is a single comprehensive database expected to store an unprecedented amount of sensitive trade data and PII, including an investor’s name, address, date of birth and Social Security Number or Individual Taxpayer Identification Number.

The CAT is expected to take in 58 billion records daily – including orders, cancellations, modifications, executions and quotes for the equities and options markets – and maintain data for more than 100 million customer accounts and their unique customer information, according to parties involved in the CAT.

The ASA says it “welcomes recent reports revealing that the exchanges intend to fire Thesys Technologies as the plan processor” and instead have Finra “run the CAT.”

The ASA says, however, it remains concerned that the question of PII collection remains unresolved.

“The SEC should take steps to eliminate any PII collection requirements for whichever entity is ultimately selected as the CAT plan processor,” ASA CEO Chris Iacovella says in the letter.

FA-IQ reached out to both the SEC and Finra to confirm if Finra will indeed be taking over the running of the CAT. The SEC had not replied as of this writing. Finra referred FA-IQ to public relations firm Sloane & Company, the spokesperson for the committee of SROs responsible for the CAT.

A Sloane & Company spokesman confirmed to FA-IQ that the CAT project is being transitioned to a new plan processor and Thesys CAT LLC is “providing necessary services through the transition period.”

CAT NMS LLC – the legal entity established to conduct the activities related to the CAT – is in the process of choosing a new plan processor, according to the spokesman.

“In transitioning the project to a new plan processor, the SROs are evaluating the impact the transition will have on current industry member implementation dates,” the spokesman says.

“The SROs anticipate that initial testing of data ingestion will begin in late 2019, and that the current industry member technical specifications will continue to provide the basis of such reporting,” the spokesman adds.

Meanwhile, the ASA says it believes the SEC “can effectively surveil the market through the consolidation of order message and trading confirmation information alone.”

The ASA adds: “We stand with the overwhelming majority of retail investors who do not want to send their PII to the CAT.”

The ASA cites “growing cyber threats targeting government and business” as among the reasons it is opposed to the collection of PII.

“Our customers, in communities across the United States, have repeatedly made it clear that they do NOT want their sensitive information sent to a one-stop, target-rich environment for cyber criminals,” Iacovella says in the letter.

Citing findings from a survey conducted in November by research firm Morning Consult, the ASA says American investors “overwhelmingly oppose” sending their personal information to the CAT.

While three in four investors trust their broker to keep their personal and financial information secure, nearly four in five wouldn’t feel comfortable if their broker were forced to send this information to an unregulated third party, according to the ASA.

Nine in 10 investors are opposed to the government requiring their broker to send investment information to an unregulated third party, the ASA adds.

“We continue to believe Finra is in a much better position and has the requisite experience and expertise to be the ultimate operator of the CAT,” the ASA says.

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