Amid the investment industry’s growing use of generative artificial intelligence (gen AI) and large language models, the U.S. Financial Industry Regulatory Authority (FINRA) is reminding brokerage firms of their compliance obligations when deploying these technologies.
In a notice to the industry, the self-regulatory organization said that, while AI and large language models have the potential to enhance firms’ products and services for investors and improve operational efficiency, firms must be aware of the potential implications for their regulatory obligations.
“While these potential uses are promising, the development of gen AI also has been marked by concerns about accuracy, privacy, bias, intellectual property and possible exploitation by threat actors, among others,” it said.
In its notice, the SRO stressed that firms “should evaluate gen AI tools prior to deploying them and ensure that the member firm can continue to comply with existing FINRA rules applicable to the business use of those tools.”
For instance, if a firm uses an AI tool as part of its oversight systems, “its policies and procedures should address technology governance, including model risk management, data privacy and integrity, reliability and accuracy of the AI model,” the notice said.
The notice reiterated that FINRA’s rules and guidance are intended to be technologically neutral, and that they apply when a firm is using AI or any other technology. It also noted that firms’ regulatory obligations apply whether the AI tools are proprietary, or if a firm is using third-party tools.
The SRO said it will consider issuing further guidance on how particular rules may apply to the use of AI for specific uses.
“FINRA understands that this area is rapidly evolving, and member firms are continuing to consider gen AI use cases,” it said. “As they do so, FINRA stands ready to engage with member firms and other interested parties on the potential supervisory and compliance implications.”