Source: The National Law Review

The National Law Review provides a detailed overview of the compliance challenges and practical policy considerations for Registered Investment Advisors (RIAs) utilizing artificial intelligence. The article addresses the growing use of AI in the financial services industry for tasks ranging from client interaction and portfolio management to marketing and data analytics. It highlights the U.S. Securities and Exchange Commission's (SEC) increasing focus on AI, particularly through its proposed rules aimed at managing conflicts of interest associated with the technology. The SEC is concerned that an RIA's use of AI might prioritize the firm's interests over those of its clients, thereby violating the fundamental fiduciary duty of care and loyalty.

To mitigate these risks, the article recommends that RIAs develop and implement comprehensive AI-specific policies and procedures. Key components of such a framework include: conducting thorough due diligence on any third-party AI vendors; establishing a clear governance structure for the oversight of AI systems; testing AI models for bias and performance before and during deployment; and ensuring robust disclosure to clients about how their data is being used and how AI influences investment recommendations. The authors emphasize the importance of documentation, as regulators will expect firms to demonstrate how they are actively managing the unique risks posed by AI. Ultimately, the piece serves as a proactive guide for RIAs to integrate AI responsibly while adhering to their stringent regulatory and ethical obligations.