Grygo is the chief content officer for FTF & FTF News.
It’s clear that during the Biden administration U.S. federal regulators and self-regulatory organizations (SROs) have been a little busy formulating new regulations and guidelines. They have also been keeping an eye on how updated technology can help firms meet their compliance obligations.
In fact, the SEC recently greenlit a new era of electronic recordkeeping by voting to adjust the rule that requires firms to “preserve electronic records exclusively in a non-rewriteable, non-erasable format, known as the write once, read many [WORM] format.” The new amendments to its rules apply to broker-dealers, security-based swap dealers (SBSDs), and major security-based swap participants (MSBSPs).
FIRST Things First
In another nod to modern technology, the Financial Industry Regulatory Authority (FINRA), the SRO for broker-dealers, reports that it has launched “a machine-readable rulebook initiative designed to enhance firms’ compliance efforts, reduce costs and aid in risk management.”
FINRA officials have developed the machine-readable rulebook that uses “an embedded taxonomy — a method of classifying and categorizing a hierarchy of key terms and concepts — that was applied or ‘tagged’ to the 40 most frequently viewed FINRA rules,” according to the SRO. “The taxonomy allows users to apply an enhanced search feature to find specific content by starting with a broad topic and then narrowing down to more specific topics through sub-categories and combinations of multiple terms.”
The 40 rules that FINRA tagged as part of the initiative are: 1210, 1220, 1230, 1240, 2010, 2040, 2090, 2111, 2122, 2210, 2231, 2241, 2360, 3110, 3120, 3130, 3210, 3220, 3240, 3270, 3280, 3310, 4140, 4160, 4210, 4311, 4370, 4511, 4512, 4513, 4530, 4570, 5110, 5121, 5123, 5130, 5131, 5310, 8210 and 8312.
The SRO has created a prototype of a rulebook search tool — the FINRA Rulebook Search Tool (FIRST), which is an enhanced search feature “designed to help users, including market participants and members of the public alike, to efficiently identify potentially relevant FINRA rules and their associated requirements using the taxonomy terms.”
The FIRST search feature is accessible via a user interface on the FINRA website.
FIRST helps end-users access the taxonomy that has been applied to the FINRA rulebook, and FIRST uses “a browse functionality that allows users to explore the summary topics and detailed topics before selecting search terms. Users can expand and collapse the taxonomy as they browse. There is also a free text search function through which users can look for a specific term.”
“We developed the taxonomy structure and the FIRST search tool to help all users more easily identify and search applicable rules regardless of their level of expertise,” says Afshin Atabaki, special advisor and associate general counsel at FINRA, in a prepared statement.
Using APIs for Machine Readability
FINRA is also facilitating access to the taxonomy terms tagged to each of the 40 rules through an application programming interface (API) — “a software intermediary that allows two applications to communicate and interact with each other,” the SRO say. “This feature can enable member firms seeking to automate compliance functions to link the FINRA rule content and the taxonomy terms to their internal compliance policies and procedures, where appropriate.”
“APIs can facilitate how developers integrate new application components into their existing technology frameworks. Through the rulebook API on the FINRA API Platform, firms can ingest the rule content along with taxonomy terms applied to each of the 40 tagged FINRA rules. This would enable member firms to develop an integration that links the rule content and taxonomy terms to their internal compliance policies and procedures, where appropriate,” according to FINRA.
FINRA is asking for feedback via a Special Notice and wants commentary on “the development of the taxonomy, the enhanced search features available through FIRST, the content available through the API, and any potential benefits or challenges associated with the overall user experience. The comment period runs through Dec. 20,” the SRO says.
For more information and for ways to comment, go to https://bit.ly/3DYk28a
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