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Gen AI, Reg BI Among New Topics in 2025 FINRA Regulatory Oversight Report

By Mari Nicholson

Gen AI Reg BI Among New Topics in 2025 FINRA Regulatory Oversight Report

The Financial Industry Regulatory Authority published the 2025 FINRA Regulatory Oversight Report, a resource comprising observations from across FINRA’s member supervision, market regulation and enforcement programs that member firms may use with the goal of strengthening their compliance programs.

According to FINRA, the report contains vital information and reflects the agency’s commitment to providing transparency to member firms and the investing public about its regulatory observations and activities.

“This report is a valuable tool that we provide to member firms in support of our self-regulatory mission to protect investors and ensure market integrity. The topics reflect areas where FINRA has observed gaps in firm compliance programs as well as areas of emerging or increased risk,” said Greg Ruppert, executive vice president and head of member supervision at FINRA.

“Monitoring the markets, anticipating and addressing risks, identifying and investigating trading violations, and leveraging data are all part of the important work that FINRA does to safeguard the integrity of our vibrant capital markets to ensure that everyone can invest with confidence,” added Stephanie Dumont, executive vice president and head of market regulation and transparency services at FINRA.

FINRA said that the report covers 24 topics, including new content. For each area, the report identifies the relevant rule(s), summarizes noteworthy findings or observations, as well as effective practices observed, and provides additional resources that may be helpful to member firms in reviewing their supervisory procedures and controls and fulfilling their compliance obligations.

New content covered in the report that may be especially relevant to the alternative investments space includes:

  • Third-party risk landscape. FINRA stated that it has observed an increase in cyberattacks and outages at third-party vendors used by member firms in recent years. Given the financial industry’s reliance on third-party vendors to support key systems and covered activities, an attempted cyberattack or an outage at a third-party vendor could potentially impact a large number of firms.
  • Sales practice and Reg BI compliance regarding complex products (e.g., registered index-linked annuities). The U.S. Securities and Exchange Commission’s Regulation Best Interest establishes a “best interest” standard of conduct for broker-dealers and associated persons when they make recommendations to retail customers of any securities transaction or investment strategy involving securities, including recommendations of variable annuities and registered index-linked annuities.
  • Artificial intelligence. FINRA has noted that AI-based tools have been widely used in the financial services for a number of years and recognizes their potential value for investors, member firms and markets, along with the need for all those involved to manage potential risks. FINRA has observed that firms are proceeding cautiously with their use of generative AI technology, generally exploring or implementing vendor-supported Gen AI tools to increase the efficiency of internal functions.
  • Investment fraud by bad actors that directly targets investors. FINRA said that it has observed an increase and evolution in investment fraud committed by bad actors who engage directly with investors. This typically includes enticing victims to withdraw funds from their securities accounts and send the funds to the bad actors as part of a fraudulent scheme.
  • FINRA rules concerning the Remote Inspections Pilot Program and Residential Supervisory Location designation. Advances in technology and communications in the financial industry have significantly changed the way in which firms and their associated persons conduct business. In recognition of these changes, FINRA adopted FINRA Rules 3110.18 (Remote Inspections Pilot Program) and 3110.19 (Residential Supervisory Locations), which reflect a measured, modernized approach to supervision while preserving investor protection objectives.

“Transparency is essential to a healthy regulatory program, and that is what we aim to provide with the Regulatory Oversight Report. This report contains information and insights that were gathered during the course of our regulatory operations activities, as well as some of the effective practices we have observed, to help member firms enhance their compliance programs,” said Bill St. Louis, executive vice president and head of enforcement at FINRA.

According to FINRA, the subjects covered in the report will be featured in other FINRA-related compliance and education resources throughout the year, including at the 2025 FINRA Annual Conference taking place May 13-15 in Washington, D.C.

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