FINRA Reminds BDs of Their Duties When Using AI

LLMs, the notice states, “are a type of Gen AI that use deep learning techniques and large data sets of language to identify, summarize, predict and generate new text-based content.”

Generative AI technology “presents both promising opportunities for investors and member firms and some attendant risks,” FINRA’s 2024 Annual Regulatory Oversight Report pointed out.

New AI tools “have the ability to analyze and synthesize vast sets of financial and market data, summarize large and complex documents, and power educational resources that may help investors at all experience levels understand and navigate markets more effectively,” according to the notice.

The tools also “may allow an associated person to, for example, easily locate and query a member firm’s policies and procedures or forms, to generate summaries derived from the member firm’s research reports, or to obtain issuer-specific information by drawing on SEC filings and earnings call transcripts,” according to FINRA.

Broker-dealers also may be able to leverage Gen AI tools “to aid in surveillance by, for example, generating reports with summaries for the member firm’s (human) compliance personnel of potential evidence of malfeasance, such as market abuse or insider trading,” the notice states.

“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,” FINRA states.