AI Governance
for Broker-Dealers
Broker-Dealers and Dual Registrants are using AI to hone their firms’ trading strategies, improve client engagement, and streamline operations. However, adopting AI brings risks that demand proactive oversight, especially as guidance from FINRA evolves and the SEC examines firms’ use of AI more rigorously. Safeguard your firm against hidden bias, sensitive data exposure, and regulatory violations.
Growing Broker-Dealer
Businesses Need to…
Innovate with Oversight,
not Overhead
Your most important resources should be guiding how your firm innovates with AI and running your growing business. We’ve streamlined the governance workflow, so your leaders and experts providing critical oversight can govern AI with ease.
Teams can’t all be experts in AI, regulatory compliance, and risk management – on top of their core competency. We’ve infused decades of knowledge of AI, investment advisory operations, governance and compliance directly into the tool.
Empower your organization with this information at their fingertips as they explore new AI use cases.
Stay in Sync with AI Rules and Regulators
State and Industry regulators want to know how you’re using AI and what safeguards you have in place.
With the SEC announcement of AI as a priority for Examinations in 2025, firms must be ready to prove due diligence on AI use and provide evidence of effective AI risk management practices.
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Only AI Guardian combines AI tracking, shadow AI detection, and AI compliance automation purpose-built for Investment Advisors, to accelerate your compliance and readiness for regulatory sweeps and audits.
Manage AI Vendors with Confidence
More vendors are using AI, and most AI is being built with countless vendors – every one of those vendors is a vector for risk and needs oversight.
With our library of hundreds of third-party software platforms used by Investment Advisors, you can get instant visibility into AI features and risks posed by vendors and common tools.
Use our Vendor Portal for efficient due diligence and know your vendor AI risk is under control.
Success Story:
Another AI Journey guided by AI Guardian
A Dual Registrant with $5B in AUM turns around its AI governance in under one month, showcasing the effectiveness of a structured approach to AI oversight.
Key AI Benefits of AI for Broker-Dealers
Beyond Predictive Data Analytics, AI is helping Investment Advisors achieve significant improvements, including:
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Enhanced Supervision: Streamline compliance monitoring and improve client relationships.
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Improved KYC and AML Processes: Utilize AI for better risk assessment and client onboarding.
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Automated Administrative Tasks: Free up time for advisors to focus on high-value activities.
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Knowledge Retention: Preserve institutional knowledge and improve accessibility.
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Firms are seeing positive results…
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Keeping customers with AI-driven personalization that improves customer retention
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Getting more customers with AI-assisted lead generation
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Attracting more advisors with modern technologies that reduce administrative burden
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Supporting additional advisors with tools that assist core operational teams
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Serving more customers with producing advisors freed to focus on what they’re best at
…provided they effectively manage the risks (below).
Common AI Risks and Next Steps
for Investment Advisors
Per FINRA publication on the matter, AI adoption can significantly impact Broker-Dealer regulatory obligations in the following areas:
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1. Anti-Money Laundering (AML)
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Opportunities: AI can enhance transaction monitoring and identify unusual patterns indicative of money laundering more effectively than traditional methods.
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Risks: Overreliance on AI could lead to false positives or undetected risks if models are poorly trained or biased, potentially leading to non-compliance with AML requirements.
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2. Books and Records
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Opportunities: AI can streamline record-keeping processes by automating documentation and ensuring compliance with storage and retrieval standards.
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Risks: Inaccurate or incomplete AI-generated records may result in violations of record-keeping obligations. Firms must ensure auditability and traceability in AI processes.
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3. Business Continuity
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Opportunities: AI can support disaster recovery and operational resilience by predicting potential disruptions and automating response strategies.
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Risks: Dependence on AI tools without robust failover systems could exacerbate vulnerabilities during outages or crises.
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4. Communications With the Public
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Opportunities: AI can personalize communications and ensure regulatory compliance by flagging potentially misleading content before publication.
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Risks: AI-generated materials might inadvertently include non-compliant messaging or omit necessary disclosures, leading to regulatory issues.
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5. Customer Information Protection
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Opportunities: AI can improve data protection through advanced anomaly detection and real-time monitoring of suspicious access.
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Risks: Poorly secured AI systems may expose sensitive customer information to breaches or misuse, violating privacy and protection standards.
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6. Cybersecurity
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Opportunities: AI enhances threat detection and response, enabling firms to preemptively address emerging cybersecurity risks.
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Risks: AI systems themselves may become targets for attacks, such as data poisoning or adversarial exploits, increasing the firm’s risk exposure.
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7. Model Risk Management
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Opportunities: Rigorous AI testing and governance can help firms comply with FINRA’s expectations for sound model risk management.
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Risks: Lack of explainability or poor-quality training data can undermine model integrity, leading to regulatory scrutiny. Governance frameworks must ensure accountability and transparency.
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8. Research
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Opportunities: AI can support investment research by processing vast datasets quickly and identifying actionable insights.
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Risks: Errors in AI-driven analysis, such as biases in data or algorithms, may compromise the integrity of research and lead to misleading advice, violating regulatory standards.
9. SEC Regulation Best Interest (Reg BI)
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Opportunities: AI can assist in identifying investment products aligned with a client’s best interests by analyzing suitability data.
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Risks: Misaligned AI recommendations, due to faulty algorithms or incomplete data, could result in non-compliance with Reg BI obligations.
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10. Supervision
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Opportunities: AI can automate supervisory tasks, such as monitoring trading activities or ensuring adherence to internal policies.
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Risks: Overdependence on AI for supervision may create blind spots, particularly if the AI fails to capture nuanced compliance issues.
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11. Vendor Management
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Opportunities: AI can provide greater transparency into vendor risks by analyzing contracts, performance metrics, and compliance adherence.
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Risks: Firms using third-party AI vendors must ensure these vendors adhere to FINRA standards, including data security, model validation, and operational reliability.
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Risk Mitigation Strategies
for Effective AI Governance
To address these risks, Broker-Dealers should:
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Roll out an effective, enforceable AI Acceptable Use policy.
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Establish an efficient AI governance committee and process.
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Implement one or more AI Risk Management frameworks (e.g., applicable NIST / ISO standards, MITRE ATLAS, HITRUST).
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Train teams on AI capabilities, risks (including regulatory, security, and privacy requirements), and oversight.
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Ensure coverage of third-party AI risks in vendor contracts and due diligence.
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Future-Proof Your Firm with a
Free AI Risk Assessment
from AI Guardian
Address challenges and risks associated with AI adoption to enhance operations while ensuring compliance. Establish effective governance frameworks to boost AUM, improve client retention, and operate securely and ethically in this evolving landscape.