Consolidated Audit Trail: Strategic planning and best practices

Abstract

The US equities and options regulators have long sought a ‘one stop’ research solution to analyse and investigate events in the market or perform general reviews. The Securities and Exchange Commission’s Consolidated Audit Trail (CAT) is the industry’s solution and it is designed to capture trades from the initial order through to final client delivery. The ongoing challenge for financial services firms is that there are many types of business, technical infrastructure and booking models within the equities and options world that make it difficult to create a specification to capture diverse information appropriately. Firms must understand exactly how their businesses align with CAT requirements and conform accordingly. As financial services organisations prepare to invest in the people, processes and technology necessary to comply with CAT requirements, key focus areas will be data and control infrastructure. Whether your technical solution involves the creation of a repository for data centralisation or managing delivery from multiple silos, its success relies upon a mature and resilient control framework executed to a consistent standard throughout. A strong control framework gives a firm the ability to empower their compliance functions, business lines and IT groups to react to developments in the regulatory landscape and implement change effectively. Clear and consistent control is also crucial for senior leadership to prioritise product development alongside these mandated needs. To implement the required changes, a detailed project plan, dependency analysis and committed milestones should be defined to align the multiple stakeholders across a financial services organisation and provide a path to success. A fully compliant CAT solution will depend on aligning systems, cleansing customer data, normalising order and settlement information. It will also require matching the CAT report against the actual orders as well as executions and allocations within authoritative data sources, along with any other regulatory reports derived from these systems. As a final note, while CAT compliance is a required effort, it is also a great opportunity for firms to approach the change strategically. The people, process and technology transformation required for CAT will allow organisations to invest in remediating or enhancing data infrastructure and to evaluate legal entity utilisation and trade booking models. It will also enable firms to review and improve their operating models and procedural documentation, as well as integrate regulatory reporting with other in-house reports and workflows.