Think Your CAT WSPs Are Audit-Proof? Think Again

As regulatory expectations tighten, Capital Market Solutions (CMS) is sounding the alarm on an often-overlooked but highly consequential area of Consolidated Audit Trail (CAT) Compliance: the readiness and robustness of Written Supervisory Procedures (WSPs).

In its recently published article "Are Your CAT WSPs Audit Ready? Key Areas Firms Often Overlook", CMS outlines the risks and common shortcomings firms face when preparing for FINRA CAT audits.

https://capmarketsolutions.com/are-your-cat-wsps-audit-ready-key-areas-firms-often-overlook/

With years of experience helping financial institutions navigate complex trade reporting requirements, CMS emphasizes that WSPs aren't just internal checklists-they're central documents that regulators rely on during audits to evaluate whether a firm's supervisory structure aligns with CAT compliance requirements.

Why WSPs Are a Critical Part of FINRA CAT Compliance
The Consolidated Audit Trail (CAT) was designed to provide regulators with a complete, standardized view of order and trade activity across U.S. equities and options markets. For firms, this means participating in one of the most detailed and expansive regulatory reporting structures ever created.

While much attention has been placed on the accuracy and timeliness of CAT reporting files, FINRA CAT enforcement is increasingly focused on how well firms document and supervise the processes around those reports. That's where WSPs come in.

WSPs must clearly define responsibilities, timelines, corrective actions, and oversight mechanisms-not just for CAT reporting, but for all associated infrastructure, from system clocks to third-party vendor involvement.

CMS Reveals Key Areas Firms Commonly Overlook in Their CAT WSPs
Through its work with broker-dealers, trading firms, and clearinghouses, Capital Market Solutions has identified five critical areas that are often insufficiently addressed in CAT-related supervisory documentation:

1. CAT Error Correction Procedures
Firms must document how CAT file errors are tracked, escalated, and resolved. CMS notes that many firms fail to designate responsibility for daily error reconciliation and do not log remediation steps for compliance purposes.
https://capmarketsolutions.com/cat/

2. Clock Synchronization Protocols
FINRA requires systems used in CAT reporting to synchronize within strict tolerances. WSPs must include detailed procedures for clock sync validation and documentation. Yet many firms leave this section vague or outdated, exposing themselves to avoidable findings.

3. Vendor Oversight and Integration
Third-party CAT reporting vendors play a key role in submission and validation. CMS often finds that WSPs don't adequately describe how vendors are evaluated, managed, and audited-creating a compliance gap that FINRA may flag.

4. System or Workflow Changes
Whether due to M&A activity, technology upgrades, or regulatory updates, operational changes must be reflected in WSPs. Unfortunately, many firms operate under outdated documentation that no longer aligns with their current reporting architecture.

5. Preservation of Audit Trail Data
Data retention rules are strict under CAT. Firms must maintain complete records that are easily retrievable and auditable. CMS warns that inadequate documentation on data retention policies may put firms at risk during regulatory inspections.

The CMS Advantage: Tools + Expertise to Ensure CAT Audit Readiness
Capital Market Solutions not only alerts firms to potential weaknesses-it also provides actionable solutions through its Regulatory Surveillance and Monitoring System (RSMS). This purpose-built platform enables:
Real-time CAT reporting validations and error alerts

Automated reconciliation tools to match submissions with feedback from FINRA

Configurable dashboards for compliance teams to monitor health metrics

WSP-aligned workflows that maintain an audit-ready record of all CAT reporting activities

Custom documentation support to bring WSPs in line with current regulatory expectations

By integrating WSP-related logic and audit functionality directly into its systems, CMS helps firms move from reactive to proactive CAT compliance-a critical shift in today's regulatory landscape.

"When it comes to CAT, firms can no longer afford to treat WSPs as static documents. Regulators want to see living, dynamic procedures that truly reflect day-to-day operations. That's what we help our clients build," said a CMS compliance expert.

https://capmarketsolutions.com/rsms/

The Rising Tide of FINRA CAT Enforcement
Recent developments show that FINRA is intensifying its CAT-related enforcement, including:
More rigorous documentation requests during routine exams

Disciplinary actions tied to supervisory failures, not just reporting errors

Increased expectations for internal control mechanisms and data retention

This means that even if a firm's CAT files are accurate, inadequate WSPs may still result in findings or penalties. CMS strongly advises firms to conduct periodic reviews of their CAT supervisory procedures in tandem with system-level validations.

Contact:
Capital Market Solutions
Email: sales@capmarketsolutions.com
Office: New York, NY
Visit: www.capmarketsolutions.com

Capital Market Solutions (CMS) is a leader in regulatory, compliance, and reporting solutions for investment banks, broker-dealers, hedge funds, and more. For years, CMS has helped firms by providing reliable and flexible tools to meet regulatory demands. The cloud-based RSMS CAT modules are among CMS's most trusted products, delivering secure, accurate, and efficient compliance processes. By combining smart technology with expert regulatory knowledge, CMS continues to simplify and enhance compliance for financial firms around the world.

This release was published on openPR.