TLDR: The Financial Industry Regulatory Authority (FINRA) is significantly advancing its use of artificial intelligence, including generative AI, to bolster market surveillance and firm risk reviews. This strategic move aims to improve regulatory efficiency and effectiveness, with FINRA also engaging member firms on their own AI adoption strategies.
The Financial Industry Regulatory Authority (FINRA) is making substantial strides in integrating artificial intelligence (AI) into its core regulatory functions, particularly in market surveillance and firm risk reviews. This initiative, highlighted by FINRA President and CEO Robert Cook, underscores the regulator’s commitment to leveraging advanced technology for more effective and efficient oversight of the financial markets.
In a recent blog post, Cook detailed FINRA’s extensive internal use of AI, which includes running numerous algorithms to analyze billions of market events daily. These algorithms are crucial for identifying and flagging potentially problematic activities, prompting further investigation by the regulator. Cook emphasized that FINRA is actively building expertise, infrastructure, and capabilities in generative AI to enhance its self-regulatory functions.
FINRA’s approach to AI is characterized by careful implementation. Cook noted that the regulator “approaches new AI-enabled tools carefully,” allowing time for piloting and refinement. Key safeguards include limiting access to sensitive data within FINRA and maintaining robust oversight through rigorous security assessments and regular reviews to ensure compliance with security standards and the protection of regulatory information. An internal AI governance committee coordinates this comprehensive process.
Beyond its internal applications, FINRA is fostering a “constructive feedback loop” with its member firms to understand their adoption of generative AI. Cook stated, “what we learn in one context enriches our work in the other,” indicating a collaborative effort to navigate the evolving AI landscape across the industry. This engagement is critical as FINRA’s 2025 Annual Regulatory Oversight Report also focuses heavily on AI, providing guidance for firms.
The 2025 guidance from FINRA outlines several key considerations for member firms utilizing AI. These include the expectation for firms to clearly define and consistently apply their AI use, ensuring that any disclosures in marketing or client communications accurately reflect actual AI capabilities. Furthermore, AI systems, including generative AI tools, must be incorporated into existing supervisory frameworks under FINRA Rule 3110, necessitating governance practices around accuracy, bias, data integrity, and model risk. Firms are advised to document AI decision-making processes, review outputs, and maintain human oversight.
Managing vendor and third-party risks is another critical area, with FINRA emphasizing that due diligence must extend to understanding how vendors use AI, manage data, and implement controls. Cybersecurity and fraud risks are also paramount, as cybercriminals increasingly leverage AI for threats like deepfakes, synthetic identities, and AI-driven phishing. FINRA encourages firms to evolve their cybersecurity programs to counter these sophisticated risks through enhanced monitoring, phishing simulations, and identity validation. Additionally, firms must review AI-generated communications for compliance with regulatory obligations.
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FINRA’s proactive integration of AI, both internally and through its guidance to member firms, signals a significant shift towards a more technologically advanced and data-driven regulatory environment, aiming to maintain market integrity and investor protection in an era of rapid technological change.
