Amid industry concerns about the costs of compliance and the data security risks posed by audit trail requirements, the U.S. Securities and Exchange Commission (SEC) is undertaking a fundamental review of the U.S. Consolidated Audit Trail (CAT) system.
The SEC published a concept release on Thursday that calls for public input on the operation of the CAT — including its regulatory purpose, its design, structure and governance, along with its cybersecurity and data privacy safeguards. It’s also seeking feedback on the proper balance between regulatory needs, civil liberties and privacy considerations.
The consultation — which represents an initial effort at sparking a public policy debate, before any actual reforms are proposed — comes in the wake of developments since the CAT was implemented in 2016, the SEC noted.
Among other things, its annual operating costs “have grown well beyond” initial expectations, the regulator said — in part due to higher-than-expected trading volumes.
Additionally, the regulator has been lobbied by the industry for potential changes to audit trail and related data requirements, the CAT has faced legal challenges, and calls to alter its operational and funding requirements.
At the same time, the SEC is resetting its approach to regulatory burdens under its new leadership.
“Over the last year, the commission has issued exemptive relief and approved amendments to the national market system plan governing the CAT that have, among other benefits, reduced the CAT’s projected annual operating costs by over US$100 million and permanently eliminated the reporting of personal identifiable information to the CAT. However, we can — and must — do more,” said SEC chairman, Paul Atkins, in a release.
“Accordingly, the concept release seeks comment on foundational and existential aspects of the CAT. The commission is aware of the need to address many aspects of the CAT, and public comment is a crucial piece of the comprehensive review currently under way,” he added.
The paper will be out for a 60-day public comment period after it’s published in the Federal Register.