October 29, 2014 / 8:59 PM / in 3 years

Wall Street watchdog to bolster reviews of brokerage cyber security

A man types on a computer keyboard in Warsaw in this February 28, 2013 illustration file picture. REUTERS/Kacper Pempel/Files

(Reuters) - Wall Street’s industry funded watchdog plans to intensify its scrutiny of cyber security practices at brokerage firms in 2015 and is hiring technology savvy examiners to help boost its efforts, an official said on Wednesday.

The Financial Industry Regulatory Authority (FINRA) is in the midst of developing its so-called “examination priorities” for 2015, said Susan Axelrod, the organization’s executive vice president of regulatory operations at a conference. The regulator plans to publish its examination priorities in January.

FINRA’s growing focus on cyber security practices also marks the first time the regulator is hiring examiners with technology expertise to assist in reviewing firms’ practices, a FINRA spokeswoman told Reuters. The watchdog routinely examines brokerages to check up on whether they are complying with securities industry rules.

FINRA is beefing up its efforts as Wall Street grows increasingly concerned about hacking, which could compromise their clients’ personal information and other data.

Last week, The Securities Industry and Financial Markets Association (SIFMA), Wall Street’s top trade group, called for the creation of a new inter-agency working group of regulators and the White House that would be charged with developing consistent cyber security rules for the financial industry.

It was one of several cyber security regulatory suggestions that SIFMA unveiled in a white paper a few weeks after JPMorgan Chase & Co revealed that hackers had compromised the names, addresses, phone numbers and emails of about 83 million households and small business accounts.

FINRA expects to hire a “handful” of examiners with technology expertise, Axelrod said. The role includes examining measures that firms have in place for securing clients’ data and testing the integrity of firms’ technology, according to a FINRA job description posted on LinkedIn.

Other 2015 examination priorities will include FINRA’s ongoing focus on firms’ practices related to sales of complex securities to investors, Axelrod said. Among the regulator’s concerns: promises of discounted sales charges that firms promise to customers who meet minimum threshold requirements for certain securities.

So-called “breakpoint discounts,” for example, are typically a feature of unit investment trusts, a type of investment company that holds a fixed portfolio of securities and offers “redeemable units” of that portfolio to investors for a specified period of time.

Unit investment trust sponsors typically provide discounts for large purchases of the units. The discounts increase as investors buy more of the securities.

FINRA wants to ensure that investors have actually received the discounts promised and, if not, that firms are giving the money back to them, Axelrod said.

Reporting by Suzanne Barlyn; editing by Andrew Hay

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