Key Compliance Considerations for AI use in FINRA Broker-Dealers
The integration of Artificial Intelligence (AI) in the securities industry is rapidly transforming various functions within broker-dealers, from customer communications to investments processes and operational functions. However, the use of AI also brings several compliance considerations that broker-dealers must address to ensure adherence to regulatory standards and protect investor interests.
Key Compliance Considerations:
1. Supervision and Oversight: Broker-dealers must establish robust supervisory and oversight mechanisms for AI systems. This includes implementing technical controls to monitor AI applications and ensuring that AI-generated communications comply with applicable federal securities laws and FINRA rules. Supervision requirements outlines in FINRA Rules 2210 and 2220 must be strictly followed.
2. Recordkeeping Obligations: Firms must maintain comprehensive records of AI activities, including data inputs, algorithmic decisions, and outcomes. This ensures transparency and accountability in AI operations and facilitates regulatory audits and investigations.
3. Content Standards: AI generated communications must adhere to content standards to prevent misleading or false information. This includes ensuring that AI chatbots and other AI tools provides accurate and reliable information to clients.
4. Risk Management: Effective risk management practices must be in place to identify and mitigate potential risks associated with AI systems. This includes conducting thorough risk assessments and implementing measures to minimize the risk of errors, biases, and other issues that could impact investor decisions.
5. Coordination with Data Scientists: Compliance teams should work closely with data scientists to validate AI training and testing processes. This collaboration helps ensure that AI systems are properly calibrated and capable of handling complex interactions without providing incorrect information during interactions.
6. Investor Protections: Firms must build investor protections around AI tools to safeguard client interests. This includes providing clear disclosures about the use of AI and ensuring that clients are aware of the limitations and potential risks associated with AI-driven services.
By addressing these compliance considerations, FINRA broker-dealers can leverage the benefits of AI while maintaining regulatory compliance and protecting investor interests.
Broker-dealers can also review FINRA’s guidance on AI Applications in the Securities Industry, and FINRA’s paper on Artificial Intelligence (AI) in the Securities Industry.