At COMPLYConnect 2023, one of the most popular sessions focused on generative artificial intelligence (AI) and ChatGPT at financial firms. This wasn’t surprising, though! As a matter of fact, the integration of AI has become a game changer for many firms in recent years, with generative AI at the forefront of innovation. For compliance professionals at registered investment advisory (RIA) firms, leveraging AI offers unparalleled advantages but comes with inherent risks that demand careful consideration.
Note: At its core, AI is a broad term that refers to the development of computer systems capable of performing tasks that typically require human intelligence. Generative AI, on the other hand, is a specific subset or approach within the broader field of AI and refers to AI models and systems that have the ability to generate new content, such as images, text or even entire pieces of code. ChatGPT and Bard are examples are generative AI systems.
Understanding the landscape: Generative AI in financial services
AI in financial services, including the implementation of generative AI, has redefined how RIA firms operate. From predictive analytics to automated decision-making, the potential benefits are immense. However, with innovation comes responsibility, especially in a sector where regulatory compliance is paramount.
Generative AI, with its ability to create and learn from data patterns, opens new avenues for efficiency and insight at your RIA firm. From risk assessment to portfolio management, there are several ways your RIA firm can use generative AI. However, compliance professionals must navigate the top potential pitfalls to ensure adherence to regulatory standards:
1. Difficulty understanding how generative AI systems make decisions.
Generative AI systems sometimes arrive at conclusions that are difficult to trace. This complexity raises concerns where transparency is crucial for regulatory compliance. Regulators often require firms to explain the logic behind automated decisions to ensure fairness, accountability and compliance with regulations. Therefore, to ensure compliance with regulations and to be able to answer any of their questions, compliance professionals should prioritize solutions that offer transparency and interpretability.
2. Data bias and unfairness in generative AI outcomes.
Generative AI systems are only as unbiased as the data that trains them. This means that if your firm is creating or using a generative AI system, there must be a process in place to ensure that it generates fair and equitable outcomes (in financial decision-making, etc.).
3. Security concerns with generative AI.
The integration of AI introduces new cybersecurity challenges. Compliance professionals need to work closely with IT teams to implement robust security measures, safeguarding sensitive client information from potential breaches.
4. Ensuring continued regulatory compliance.
Evolving regulatory landscapes can pose challenges in ensuring generative AI systems align with industry standards. Regular audits and updates and keeping up with regulations are essential to guarantee ongoing compliance with financial regulations.
Mitigating the risks of generative AI in financial services
While Generative AI in financial services presents unparalleled opportunities for RIA firms, compliance professionals play a pivotal role in mitigating associated risks. Mitigation strategies can include:
1. Continuous monitoring and auditing of how your firm uses generative AI.
Implement a rigorous monitoring and auditing process to track AI decision-making. Regular assessments help identify and address any deviations from compliance standards.
2. Collaborate with others to manage your firm’s generative AI system.
Foster collaboration between your firm’s compliance team and various departments, like IT and Legal. Your RIA firm might also consider consulting external consultants for further input. A multidisciplinary approach ensures a comprehensive understanding of both compliance requirements and AI intricacies and how to ensure that how your firm uses generative AI is still in compliance with regulations.
3. Prioritize generative AI systems that offer transparency in model development.
Understanding the inner workings of the AI system enables compliance professionals to provide clear explanations to regulators.
4. Offer continuous education and training to employees.
Invest in continuous education and training for compliance professionals to stay informed on how to use the generative AI system safely and appropriate, potential risks and how they can do their part in ensuring the safety of the firm.
By embracing transparency, collaboration and continuous education, compliance teams can harness the power of generative AI responsibly.
AI Compliance with Confidence
The world is moving fast, and you need a compliance partner who can help you not only keep up but stay ahead. Meet COMPLY!
Our consulting solutions help you not only meet the demands of the regulatory landscape, but assess, test and improve your compliance procedures, helping you comply with confidence.
As the year comes to a close and the regulatory landscape continues to evolve, you cannot afford to fall behind. By choosing COMPLY, you gain a trusted and reliable partner and guide.
Need further guidance on how to integrate generative AI into your compliance program? Let’s talk!