Generative AI: FINRA Vendor and Communication Rules Still Apply

FINRA Issues Regulatory Notice 24-09

By Ed Wegener

feet at stop line representing FINRA rules around vendors and communication still apply to generative AI

FINRA Regulatory Notice 24-09

FINRA has issued Regulatory Notice 24-09 to address its expectations when member firms utilize Artificial Intelligence (“AI”), Large Language Models (“LLM”) and Generative AI (“Gen AI”). The main point of the Notice was to remind firms that, when using these or other new technologies in the course of their business, FINRA’s rules still apply.

Assessing Technology Usage and Compliance

According to FINRA, its rules were designed to be technology neutral. As such, firms should assess how these technologies are used, either by themselves or by a third-party vendor, and determine whether the firm is complying with any rules implicated by their use.

Generative AI Implementation and Regulatory Implications

FINRA cited a couple of examples to illustrate:

If a firm is using AI related tools to support its supervisory systems, FINRA said the firm should assess its technology governance, including model risk management, data privacy and integrity, and the reliability and accuracy of its AI models.

In another example, FINRA indicated that if a firm is using AI as part of a its communications with the public, FINRA Rule 2210 applies. FINRA pointed to an FAQ that was issued around Communications with the Public, related to the use of Chatbot and AI related communications.

As FINRA noted in this Notice, new technologies such as AI have both promising opportunities and related risks. It is important for firms to understand both and to ensure that, when employing such technologies and based on the specific use cases, they are complying with all relevant rules and regulations.

The Expertise You Need to Navigate AI Regulatory Requirements

At Oyster Consulting, we understand the transformative power of technology and the balancing act of moving forward while managing risk. Our teams of regulatory compliance consultants and technology strategists work closely with wealth management firms to navigate the digital landscape, ensuring that technology implementations comply with industry standards. By partnering with us for compliance consulting and operations strategy, your firm can embrace the digital age while protecting your firm and your clients.

About The Author
Photo of Ed Wegener

Ed Wegener

Ed Wegener is an innovative compliance, risk management and supervisory controls expert with deep understanding of Federal Securities Laws and the rules of self-regulatory organizations, as well as technology optimization and risk mitigation. Prior to joining Oyster, Ed held several posts in FINRA, most recently as  Senior VP and Midwest Regional Director.