FINRA Releases White Paper on Artificial Intelligence

According to the Financial Industry Regulatory Authority (FINRA), financial institutions are allocating significant resources to developing applications that use artificial intelligence (AI) to offer innovative products, increase revenues, cut costs and improve customer service. For example, broker-dealers are currently evaluating and implementing AI-based applications to assist with customer-facing, investment and operational activities. As a result of these developments, FINRA’s Office of Financial Innovation has met with a number of market participants to learn more about the use of AI in the securities industry. Following these discussions, FINRA published a white paper addressing the following topics:

• Defining the scope of AI;

• Areas in which broker-dealers are evaluating or using AI (including communications with customers, investment processes and operational functions); and

• Regulatory considerations for AI-based tools.

FINRA has requested comments in response to the white paper, as well as comments related to AI applications and their implications for FINRA rules.

FINRA Revises Problem Codes for Reporting Customer Complaints and for Filing Documents Online

On June 10, FINRA issued Regulatory Notice 20-17, which addresses changes to the Problem Codes that FINRA members are required to use for self-reporting customer complaints. These changes are designed in part to account for the new Regulation Best Interest and Form CRS requirements that take effect on June 30.

FINRA Rule 4530 (Reporting Requirements) requires member firms to report information regarding written customer complaints. As a part of the reporting process, FINRA members are required to select the appropriate Rule 4530 Problem Code when reporting quarterly statistical and summary customer complaint information and on the form that is completed when filing required documents online.

To address complaints that may arise in connection with a firm’s compliance with Regulation Best Interest (such as allegations relating to recommendations made to retail customers), FINRA is adding new Problem Code 16–Reg BI to the current Rule 4530 Problem Codes. Member firms should use Problem Code 17–Form CRS when a reportable matter relates to allegations involving Form CRS. These two Problem Codes will become available on July 18.

Aside from the addition of new Problem Codes, FINRA is retiring the Problem Code relating to the Department of Labor’s vacated suitability rule and making other non-substantive changes to existing Problem Codes.

Regulatory Notice 20-17 is available here.