FINRA Issues Reminder to Member Firms on Regulatory Obligations When Using Gen AI

The Financial Industry Regulatory Authority (FINRA) issued a regulatory notice, reminding its member firms that when incorporating the use of Gen AI or similar tools into their businesses, they should be mindful of the potential implications for their regulatory obligations. 

Artificial intelligence (AI), including large language models (LLMs) and other generative AI (Gen AI) tools, present promising opportunities for member firms to enhance their products and services for investors and achieve operational and compliance efficiencies. FINRA said that FINRA’s rules–which are intended to be technology neutral–and the securities laws more generally, continue to apply when member firms use Gen AI or similar technologies in the course of their businesses, just as they apply when member firms use any other technology or tool.

FINRA previously noted in the 2024 Annual Regulatory Oversight Report, that Gen AI technology presents both promising opportunities for investors and member firms and some attendant risks. While its 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 noted.

FINRA listed regulatory obligations when using Gen AI tools. For example, pursuant to Rule 3110 (Supervision), a member firm must have a reasonably designed supervisory system tailored to its business, as with any technology or tool, a member firm 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. 

Moreover, FINRA rules apply whether member firms are directly developing Gen AI tools for their proprietary use or when leveraging the technology of a third party, including through embedded features in existing third-party products. The rules applicable to Gen AI use will depend on how a member firm deploys the technology, and FINRA will consider issuing further guidance on how particular rules may apply with respect to specific use cases.