Wall Street’s self-regulator urges member firms to consider regulatory implications of AI deployment

  • Finra classifies artificial intelligence as an ’emerging risk’ in its annual regulatory report
  • Deploying AI in the financial industry could impact all aspects of a broker-dealer’s operations
  • Member firms should focus on the regulatory implications of using AI, including anti-money laundering, public communication, and cybersecurity
  • Concerns over accuracy, privacy, and bias accompany the use of AI
  • Finra recommends comprehensive evaluation before deploying AI technology
  • Cybersecurity threat is a top concern for the financial industry, with rising phishing campaigns and insider threats
  • Financial industry experiences a 95% increase in ransomware attacks in 2023
  • Importance of adequate supervisory controls for managing and monitoring technology highlighted

The Financial Industry Regulatory Authority (Finra) has classified artificial intelligence (AI) as an ’emerging risk’ in its annual regulatory report. Finra warns that the deployment of AI in the financial industry could have significant impacts on broker-dealers’ operations. Member firms are advised to focus on the regulatory implications of using AI, particularly in areas such as anti-money laundering, public communication, and cybersecurity. Concerns over accuracy, privacy, and bias accompany the use of AI. Finra recommends a comprehensive evaluation before deploying AI technology. The report also highlights the increasing cybersecurity threat facing the financial industry, with rising phishing campaigns and insider threats. Ransomware attacks continue to be a concern, with a 95% increase in attacks in 2023. The importance of adequate supervisory controls for managing and monitoring technology is emphasized.

Public Companies: Financial Industry Regulatory Authority (N/A), Securities and Exchange Commission (N/A)
Private Companies:
Key People: Ornella Bergeron (Senior Vice President in Member Supervision with Finra’s Risk Monitoring Program), Omer Meisel (Executive Vice President of Finra’s National Cause and Financial Crimes Detection Program)

Factuality Level: 7
Justification: The article provides information from the Financial Industry Regulatory Authority’s annual regulatory report, including the classification of AI as an ’emerging risk’ and the areas of concern related to its deployment. It also includes statements from a senior vice president at Finra and highlights the increasing cybersecurity threat facing the financial industry. The article does not contain any obvious bias or opinion masquerading as fact, and the information provided is relevant and accurate.

Noise Level: 7
Justification: The article provides some relevant information about the Financial Industry Regulatory Authority classifying AI as an ’emerging risk’ and the potential implications for broker-dealers. It mentions the regulatory implications and concerns over accuracy, privacy, and bias. However, the article lacks in-depth analysis, scientific rigor, and actionable insights. It also diverts into unrelated topics such as cybersecurity threats and phishing campaigns. Overall, the article contains some relevant information but lacks depth and focus.

Financial Relevance: Yes
Financial Markets Impacted: The article pertains to the financial industry and the use of artificial intelligence in broker-dealer operations. It discusses the regulatory implications and risks associated with deploying AI in areas such as anti-money laundering, public communication, cybersecurity, and model risk management.

Presence of Extreme Event: No
Nature of Extreme Event: No
Impact Rating of the Extreme Event: No
Justification: The article does not describe any extreme events.

Reported publicly: www.wsj.com