Follow the rules, ask questions when using gen AI, Finra tells firms

investmentnews.com:

Finra has issued a reminder to member firms regarding their regulatory obligations when incorporating generative AI and similar tools into their operations.

In a notice Thursday, the watchdog emphasized that its rules as well as securities laws in general remain applicable, even as firms adopt advanced technologies like gen AI.

“Finra reminds its member firms that Finra’s rules… continue to apply when member firms use Gen AI or similar technologies in the course of their businesses,” Finra said.

While stressing that it’s not introducing new legal requirements or interpretations of its rules, the self-regulator highlighted the ongoing relevance of existing regulations under federal securities laws.

It said the rapid advancement of AI technology in the 2020s creates new factors to consider. With the appearance of gen AI, firms can generate high-quality text, synthetic data, images, and other media, unlocking new opportunities and risks.

Finra highlighted other use cases for gen AI tools, such as analyzing vast sets of financial and market data, summarizing complex documents, enhancing educational resources for investors. Beyond that, the technology can assist associated persons in querying firm policies, generating research summaries, and obtaining issuer-specific information from SEC filings and earnings call transcripts.

This week, Morgan Stanley took another step on its gen AI journey as it unveiled a tool for advisors to generate notes from client meetings, subject to clients’ approval.

“While these 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,” the notice said.

Finr