FINRA’s new Machine-Readable Rulebook is designed to enhance firms’ compliance efforts, reduce costs and aid in risk management, with a lot to gain for firms of all sizes and various business models.
In the latest FINRA Unscripted podcast, Haime Workie, Vice President of FINRA’s Office of Financial Innovation, said it’s an effort designed to make the FINRA Rulebook easier to navigate and understand, both for individuals as well as computer systems.
“This is all done with the idea that we want to be able to facilitate compliance and make it more efficient within the securities industry,” he said.
FINRA developed the machine-readable rulebook through the creation of 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 Workie, the initiative has three separate parts: the development of a taxonomy and the other two parts are delivery mechanisms to make this kind of rulebook that’s been tagged with these key terms easier to digest both for humans and for computers.
“For computer-to-computer interaction, we have our API protocol and for human to computer interaction we have an enhanced search tool which we’ve called FIRST,” he said.
Afshin Atabaki, Associate General Counsel with FINRA’s Office of General Counsel, added that this is a prototype.
“We’ve applied this to 40 rules, but those 40 rules account for a significant portion of the rules that users typically view. So, though a prototype, and limited in number, these particular tags that we’ve selected for these 40 rules will give us a broad insight at the way users are going to navigate our Rulebook,” he explained.
Atabaki added that he API, the application programming interface, is what makes the rules machine-readable.
“We developed the API to allow anyone, including member firms, to ingest the tags applied to each of these 40 rules in an aggregate manner through a, and again, this is techspeak, JSON file, which then makes it machine-readable on the recipient side.” He added that the API is available through the FINRA API Developer Center.
“It’s part of the same package as the FINRA Rulebook API, so, firms may already have that package,” he said.
“There is a fee associated with the API and you can get more information about it on our API Development Center. But it’s really the machine-readable aspect of this initiative,” he added.
Workie said that the API process has a fee attached to it, but there’s no additional fee associated with the Machine-Readable Rulebook.
According to Workie, this is one of the potential tools within the larger regtech (regulatory technology) ecosystem.
“This is important not just in the sense of streamlining the compliance functions but freeing up resources for compliance personnel to engage in higher level compliance-related issues that potentially has greater added value that would allow us to further both our mission and the firm’s goal, which is protecting investors and making sure the integrity of the market is such that the compliance policies and procedures the firms have support that integrity,” he said.
Atabaki added that it could significantly reduce this concept of the time to compliance lag; “If you can find the relevant rule requirement and find it more quickly, you could enhance compliance efficiency. It can also free up your compliance resources, allow you to apply those saved resources to other efforts.’
“It’s a game changer in terms of searching and search functionality,” he stressed.
