As artificial intelligence transforms investment strategies and operations, compliance officers at investment firms must adapt rapidly to evolving regulatory expectations. The SEC and FINRA emphasize that AI technologies do not exempt firms from adhering to established rules. Updating compliance programs to address AI is now essential for investment firms aiming to maintain regulatory compliance and avoid costly enforcement actions.
Recognizing AI in Compliance Frameworks
The SEC and FINRA require investment firms to explicitly incorporate AI into their compliance policies and procedures. Firms must avoid “AI washing” or overstating AI capabilities, ensuring disclosures about AI use are accurate and transparent. AI should be treated as an integral part of current compliance frameworks, not as an exception to regulatory standards. This includes maintaining comprehensive inventories of AI tools deployed across client communications, digital advice platforms, and trading systems.
Governance, Inventory, and Controls for AI
Effective AI governance starts with a clear inventory of all AI applications, from back-office automation to advanced generative AI chatbots. FINRA’s 2025 Oversight Report highlights the importance of documenting governance measures, identifying use cases that pose higher risks, and prohibiting inappropriate AI applications. Firms remain fully accountable for third-party AI and RegTech tools, requiring robust controls around data privacy, bias mitigation, and model accuracy. Supervision responsibilities cannot be delegated entirely to AI providers or platforms.
Fiduciary Obligations and Conflict Management
The SEC stresses that fiduciary duties persist, regardless of AI involvement. Investment recommendations generated by AI must meet the same compliance standards as those made by human advisors. Firms are expected to proactively identify and manage conflicts arising from AI decision-making or client data handling. Enhanced risk management processes should be in place to detect, monitor, and correct any embedded bias or conflicts within AI models.
Compliance Best Practices for Officers
Compliance professionals should consider these key steps based on regulator guidance:
- Maintain and frequently update an AI system inventory, tracking both authorized and prohibited applications.
- Integrate thorough AI risk assessments into routine compliance reviews, focusing on privacy, fairness, and system reliability.
- Develop comprehensive written supervisory procedures explicitly covering all AI tools.
- Educate all staff—including advisors—on identifying misleading AI claims, risks like deepfakes, and questionable AI-generated recommendations.
- Monitor regulatory developments worldwide, noting how frameworks such as the EU’s AI Act increasingly influence U.S. compliance expectations.
Staying Ahead of Regulatory Changes
To prepare for evolving AI regulations, firms should review FINRA’s 2025 Oversight Report outlining AI governance expectations and study recent SEC enforcement actions related to AI disclosures. Staying informed about RegTech advancements and integrating innovative monitoring tools will help firms maintain agility in their compliance strategies. As AI reshapes investment management, robust governance, vigilant supervision, and honest communication will distinguish compliant firms from those prone to avoidable regulatory penalties. Legacy compliance frameworks must evolve to meet the demands of SEC and FINRA examinations focusing on AI.
#AIGovernance #Compliance #InvestmentFirms #Regulations