Executive Summary
The securities industry is rapidly adopting artificial
intelligence (“AI”) and algorithmic technologies for a
wide range of functions. While regulatory attention to date has
primarily focused on AI washing and entity disclosure obligations,
regulators have also issued guidance on testing and supervision
requirements for applications and business processes incorporating
AI. It is this guidance on which this client alert will focus.
Among other applications, brokerdealers and investment advisers are
utilizing AI for compliance, risk management, data analytics,
algorithmic trading, marketing, and customer service.
As this regulatory landscape continues to evolve, firms must
ensure they implement appropriate governance, testing, and
oversight protocols relating to their utilization of AI. To this
end, the Securities and Exchange Commission (the “SEC”)
and the Financial Industry Regulatory Authority
(“FINRA”) have provided guidance for navigating
