FINRA Annual Report Highlights Why Artificial Intelligence Data Management And Vendor Selection Protocols Are Critical For Ensuring Regulatory Compliance

The Financial Industry Regulatory Authority (FINRA) released its Annual Regulatory Oversight Report earlier this week and is shining a light on the rapidly growing and evolving use of Artificial Intelligence (AI) technology by broker-dealers, and the potentially far-reaching impacts of that use on the financial industry's regulatory landscape. In FINRA's own words, "[t]he use of AI tools could implicate virtually every aspect of a member firm's regulatory obligations."

FINRA's laundry list of key focus areas for potential regulatory implications includes, of particular note, model risk management (including testing, data integrity and governance, and explainability), customer information protection, and third-party vendor management and supervision—all of which were previously identified as areas presenting key challenges and regulatory considerations in FINRA's June 2020 Report on AI in the securities industry. These areas were also of primary focus in the