Artificial Intelligence in the Securities Industry, Broker Dealer Regulation (Second Edition)

Artificial intelligence (AI), in its various forms, continues to rapidly transform the securities industry around the world. Securities industry participants, such as broker- dealers and investment advisers, are using, and further exploring, AI technology in their businesses and operations to improve efficiency, reduce cost, enhance performance, and provide products and services with greater customization, among other benefits.

This chapter of PLI’s Broker-Dealer Regulation (2d ed.) treatise provides an overview of various approaches to defining AI; discusses AI use cases in the securities industry; and highlights certain aspects of the U.S. regulatory landscape relevant to the use of AI by securities industry participants, including existing rules and regulations, rulemaking proposals, and other regulatory initiatives. This chapter also discusses examination priorities, sweeps, and enforcement actions by US securities regulators, and outlines practical considerations for developing AI governance frameworks and risk management strategies. Finally, this chapter provides an overview of existing regulatory frameworks and developments relating to the use of AI by securities industry participants in certain non-US jurisdictions as well as initiatives by international standard-setting bodies.