FINRA

The managers who know each person's job should confirm, reduce or remove each account, and the CCO or another designated reviewer should sign and date a summary of the full review. For broker-dealers, the reviewer and the process belong in written supervisory procedures under FINRA Rule 3110 so the sign-off becomes part of the supervisory record.

Retention is how long a vendor keeps your prompts, files and outputs before it deletes them. Training is whether the vendor uses that content to build or improve its models. They are separate terms in separate clauses, so a vendor can keep data without training on it. Get a written answer to each one for the vendor file.

No SEC or FINRA rule names AI notetakers. Firms apply the existing content tests in Rules 204-2(a)(7) and 17a-4(b)(4), and FINRA Regulatory Notice 24-09 says its rules apply when firms use generative AI. Each firm should decide in its written procedures how transcripts and summaries are treated, then make sure it can retain and produce them.

For confidential conversations, yes. California Penal Code 632 prohibits recording a confidential communication without the consent of all parties, and Section 637.2 allows civil claims of $5,000 per violation. A client portfolio or planning review will usually qualify as confidential. Federal law requires only one party's consent, but the stricter state rule still applies. Confirm multi-state calls with counsel.

Under 31 CFR 1023.220, a broker-dealer keeps the identifying information it collected for five years after the account is closed. Records of verification, including documents relied on, non-documentary methods and results, and how discrepancies were resolved, are kept for five years after each record is made. Vendor tools with shorter retention need an export process.

The CIP rule allows reliance only on another financial institution regulated by a federal functional regulator, when reliance is reasonable and that institution certifies its AML program annually. A software vendor is a tool the firm uses. FINRA Regulatory Notice 21-29 reminds firms that outsourcing does not remove supervisory responsibility, so the firm owns the tool's settings and results.

Yes. In its 2024 Reg S-P adopting release, the SEC said a covered institution can adopt a single set of policies and procedures covering Regulation S-P and other rules, provided they meet the requirements of each rule. A dual-registered firm still has to tailor the program to both its brokerage and advisory business, and keep records under both the broker-dealer and adviser recordkeeping rules.

Yes. FINRA Regulatory Notice 24-09 says its rules apply when firms use generative AI through third-party technology, including features embedded in existing products. Under Regulation S-P, a vendor whose AI feature receives customer information is likely a service provider. Review the terms for the new feature before staff use it with client data.

No. Notice 21-29 is guidance. It reminds broker-dealers that outsourcing a function to a vendor does not relieve the firm of its responsibility for compliance, and points to existing obligations under FINRA Rule 3110 (supervision), Rule 4370 (business continuity), the books and records rules, and Regulation S-P. It then lists questions firms may consider across the vendor lifecycle.

Yes, under the current rule. FINRA Rule 2210(b)(1)(A) requires a registered principal to approve each retail communication before the earlier of its use or filing, subject to listed exceptions, regardless of whether a person or an AI tool drafted it. Regulatory Notice 26-14 proposes a risk-based approach, but it is a proposal and has not been adopted.

Static posts usually do. FINRA's social media guidance says most static content must be approved by a registered principal before use, whether a person or an AI tool wrote it. Interactive content, such as real-time replies, generally does not need pre-approval if the firm supervises it like correspondence, with procedures for training, surveillance, follow-up and documentation.

When it is distributed or made available to more than 25 retail investors within any 30 calendar-day period. Up to that line it is correspondence, supervised under Rule 3110(b). A template that an AI tool personalizes and sends to dozens of clients can cross the line even though each message looks individual.

Rule 2210(d)(1) bars any false, exaggerated, unwarranted, promissory or misleading statement or claim in any communication, and requires communications to be fair and balanced. Rule 2210(d)(1)(F) also bars predicting or projecting performance, implying that past performance will recur, or making exaggerated or unwarranted claims, opinions or forecasts, subject to limited exceptions. These limits apply equally to AI-drafted content.

Not to a standalone RIA. Rule 2210 governs communications of FINRA member firms, which are broker-dealers. An SEC-registered investment adviser's advertisements fall under the Investment Advisers Act marketing rule, Rule 206(4)-1. A dual-registered firm needs procedures that address both rules for the communications each side of the business sends.

Rule 3110 requires each member firm to establish and maintain a supervisory system reasonably designed to achieve compliance with securities laws and FINRA rules, and to establish, maintain and enforce written supervisory procedures. A failure to supervise finding generally means the system or procedures fell short of that standard or were not followed. For generative AI, expect examiners to ask for written procedures that cover the tools in use and evidence that reviews happened.

Rule 3120 requires firms to test and verify that their supervisory procedures are reasonably designed and to report results to senior management at least annually. When a firm uses AI monitoring as part of its supervision, that monitoring is a supervisory procedure. Including it in the annual testing gives the report, and the CEO's Rule 3130 certification, concrete evidence to stand on.

The Rule 3120 report goes to senior management and summarizes supervisory control testing, significant exceptions and resulting procedure changes. The Rule 3130 report documents the firm's processes for establishing, reviewing, testing and modifying compliance policies, supports the CEO's annual certification, and goes to the board and audit committee.

No. Supplementary Material .07 to Rule 3130 says the signatory certifies only as to having processes in place to establish, maintain, review, test and modify compliance policies and written supervisory procedures. The certification is about the processes, which must be documented in a report reviewed by the CEO.

Annually. Each certification must be signed no later than the anniversary date of the previous one. The CEO must have met with the chief compliance officer in the preceding 12 months, and the supporting report must be produced before signing and delivered to the board and audit committee.

Not by itself. An alert starts a supervisory review. If that review leads the firm to conclude, or it reasonably should have concluded, that an associated person or the firm violated securities rules in a way that meets the thresholds in Supplementary Material .01, FINRA Rule 4530(b) requires a report within 30 calendar days. Customer data in an unapproved tool may also trigger the firm's Regulation S-P incident response program.

No. FINRA has not published an AI vendor form. Regulatory Notice 21-29 groups its vendor questions around the decision to outsource, due diligence, vendor onboarding and supervision, and asks whether firms document their due diligence findings. Notice 24-09 confirms FINRA rules apply to generative AI from third parties, so the same supervision duties cover AI vendors.

FINRA Rule 4370(d) requires a firm to designate a member of senior management to approve the plan. That person must be a registered principal and is responsible for conducting the required annual review of the plan. Separately, Rule 4370(b) requires the plan to be updated whenever there is a material change to the firm's operations, structure, business, or location.

Rule 4370 does not specifically mandate testing, as FINRA stated in Regulatory Notice 21-44. It does require an annual review, and FINRA says that review may include testing BCP functionality. FINRA lists annual testing as an observed effective practice, and its recent guidance recommends regularly testing backup restoration and recovery capabilities.

FINRA's advertising FAQ B.4 says a firm using AI to create chatbot communications with investors must supervise them in accordance with applicable FINRA rules, and the content must be consistent with standards such as those in Rule 2210(d). That means fair and balanced content, no promissory claims, and records of what the chatbot said.

Mainly SEC Regulation S-P (customer information safeguards and breach notice), Regulation S-ID (identity theft red flags) and Exchange Act Rule 17a-4 (electronic records). FINRA examines against these alongside its own supervision and business continuity rules.

Yes, with limits. FINRA Rule 3110 Supplementary Material .08 lets a supervisor or principal delegate certain review functions to persons who need not be registered. The principal remains ultimately responsible for the reviews and must take reasonable steps to make sure delegated work is done properly, and should keep enough evidence to show overall supervisory control.

Under FINRA Rule 4517, firms must update required contact information no later than 30 days after any change and review it within 17 business days after the end of each calendar year. Rule 4370(f) requires two emergency contact persons, at least one a member of senior management and a registered principal.

A fourth-party vendor is a subcontractor your vendor relies on that handles your firm's data, such as the cloud host behind a CRM or archiving service. FINRA's 2026 Annual Regulatory Oversight Report lists assessing the risk of fourth-party vendors handling firm data as an effective practice, and Notice 21-29 suggests vendor contracts address subcontractor relationships.

No rule names AI prompt logs as a required record. FINRA's 2026 Annual Regulatory Oversight Report lists storing prompt and output logs, tracking model versions and human review of outputs as effective practices. Separately, any AI-drafted communication that relates to the business, once sent, is subject to the existing retention and correspondence review rules.

No. FINRA Regulatory Notice 24-09 says FINRA's rules are technology neutral and apply when member firms use AI, including generative AI. Supervision under Rule 3110, communications under Rule 2210 and recordkeeping obligations apply to AI-assisted work the same way they apply to work done by people, including AI features embedded in vendor products.

Rule 3110(c)(2) requires each inspection to be reduced to a written report kept on file for at least three years. FINRA's pilot FAQ adds that if a location's periodic inspection schedule is longer than three years, the report is kept until the next inspection report is written. Remote inspections follow the same requirement.

An office of supervisory jurisdiction (OSJ) is any member office where at least one of the functions listed in FINRA Rule 3110(f)(1) takes place, such as order execution, custody of customer funds or securities, final approval of new accounts or retail communications, or supervising associated persons at other branch offices. OSJs must be inspected at least annually.

Regulatory Notice 24-09 reminded member firms that FINRA intends its rules to be technologically neutral, and that those rules apply when firms use generative AI, whether they develop the tools themselves or use a third party's technology, including features embedded in existing products. It did not create new AI-specific rules.

Rule 3110.18 excludes Restricted Firms under Rule 4111, Taping Firms under Rule 3170, firms suspended by FINRA, firms whose membership became effective within the prior 12 months, and firms found within the past three years to have violated Rule 3110(c). Locations that handle customer funds or securities, engage in proprietary trading, or have a person on a mandatory heightened supervisory plan are also excluded.

Rule 3110.18 took effect July 1, 2024 and, according to FINRA, ends June 30, 2027. In June 2026, FINRA's Board approved a proposal to make remote inspections permanent, which FINRA said it would file with the SEC. Until the SEC acts, the pilot terms apply, including the Pilot Year 4 opt-in and opt-out deadline of December 27, 2026.

Rule 3110.18 permits remote inspections only during the pilot, which ends June 30, 2027. FINRA states that firms outside the pilot must inspect offices and locations on-site under Regulatory Notice 11-54. If no permanent rule is in effect by then, inspections planned remotely for later in 2027 would need to be conducted on-site.

Firms already in the pilot do not need to opt in again. They stay in Pilot Year 4, which runs January 1 to June 30, 2027, unless they withdraw by December 27, 2026. Firms not yet participating must opt in by December 27, 2026 to join Pilot Year 4.

No. FINRA Rule 3110 Supplementary Material .06 lets a firm use risk-based principles to decide how much correspondence and internal communication to review. If not everything is reviewed before use, procedures must include training, documentation of that training, and surveillance and follow-up. A documented monthly sample of AI prompts and outputs is one way to provide that surveillance.

FINRA's RSL checklist asks firms to determine that their surveillance and technology tools are appropriate for the location's risks, and lists secure network connections and effective cybersecurity protocols among the system tools to consider. Electronic communications must run through the firm's system, and records may not be kept at the residence. FINRA does not name specific products.

FINRA's RSL checklist excludes designated supervisors with less than one year of direct supervisory experience with the member, limited principals under Rule 1012.04, people on a mandatory heightened supervisory plan, statutorily disqualified persons who have not been approved, people with specified Form U4 disclosure events in the prior three years, and people who have received written notice of an investigation or proceeding alleging a failure to reasonably supervise.

Rule 3110.19 treats a qualifying residential supervisory location as a non-branch location, inspected on a regular periodic schedule presumed to be at least every three years rather than annually. The firm must document a risk assessment first and, since November 26, 2024, reports RSL status through a question on Form U4. A June 2026 FINRA Board proposal would change parts of the rule, pending SEC approval.

FINRA Rule 3110.18 is the Remote Inspections Pilot Program. It is a voluntary program that lets eligible member firms meet their Rule 3110(c) inspection obligations for qualified offices and locations remotely, without an on-site visit. It began July 1, 2024 and ends June 30, 2027. Participants must meet firm and location conditions, keep supplemental written supervisory procedures, and report inspection data to FINRA quarterly.

Rule 3110(c) requires OSJs and branch offices that supervise non-branch locations to be inspected at least annually, non-supervisory branch offices at least every three years, and non-branch locations on a regular periodic schedule presumed to be at least every three years. Each inspection must be reduced to a written report kept for at least three years.

Notice 21-29 lists SOC 2 Type II and SSAE 18 reports as one input to due diligence, where available. It also lists financial condition, information security and resilience, business continuity, subcontractor controls and registration questions. The Notice also suggests reviewing SOC 2 reports as part of ongoing supervision and documenting the results, so the report starts the review rather than ending it.

It is an information request in FINRA Gateway asking member firms to report the third-party vendors and banks essential to their operations. FINRA uses the responses to identify which firms may be affected when a vendor has a cybersecurity or operational problem, and to send targeted alerts. Firms can amend their responses during the year as vendors change.

Yes. Outsourcing a function does not outsource the supervisory duty under FINRA Rule 3110. FINRA expects documented vendor due diligence, ongoing monitoring, and contract terms that cover security and breach notification.

It can be. If a representative uses a personal AI account to draft or discuss business communications, the firm has no copy of that interaction. In 2022 the SEC charged 16 firms more than $1.1 billion in combined penalties for failing to preserve off-channel messages. The practical response is to approve AI tools the firm can capture and block personal accounts on firm devices.

Under 17 CFR 248.30(a)(5), a broker-dealer's incident response program must include policies and procedures requiring oversight of service providers, including due diligence and monitoring. Providers must protect customer information and notify the firm no later than 72 hours after becoming aware of a breach affecting a customer information system they maintain. The firm keeps the obligation to ensure customers are notified.

Not exclusively. Since the SEC's 2022 amendments, Rule 17a-4(f) lets a broker-dealer use either a non-rewriteable, non-erasable format or a system that keeps a complete time-stamped audit trail of every modification and deletion. Either way, the system must verify storage automatically, date retention periods and export records in human readable and usable electronic formats.

A seeded test prompt is a scripted prompt, built with dummy data, that a designated tester enters into an approved AI tool to confirm the prompt is captured, retained and flagged as expected. It tests the monitoring system from end to end. Real client information should never be used in a seeded test, and test items should be tagged so they stay out of production statistics.

Not on its own. FINRA's 2026 oversight report describes fraudsters using GenAI to create fake ID documents and deepfakes built from customers' social media images. FINRA lists likeness checks as one effective practice alongside follow-up questions based on credit bureau data and limits on automated approval of multiple accounts, which points to layering checks instead of relying on one.

FinCEN's November 2024 deepfake alert lists red flags during live verification, including a customer who uses a third-party webcam plugin, or who tries to change communication methods mid-check because of excessive or suspicious technical glitches. On a phone request, watch for a caller who cannot take a call back, insists on staying on the line, or uses urgency to skip normal steps.

FINRA guidance points to a Social Security number that is not valid or is associated with a different person's name, the same identifying information on seemingly unrelated accounts, temporary or fictitious email addresses, IP or geolocation data that does not fit the stated address, extremely rapid completion of the application, and a funding bank account in a different name.

For broker-dealers, Rule 17a-4(b)(4) covers communications relating to the business, and FINRA describes that as including text and chat messages. For advisers, Rule 204-2(a)(7) applies to written communications about advice, recommendations, funds or orders, whatever the device. Firms that cannot capture texts generally prohibit business texting and monitor for it.

Criminals use AI to generate speech that sounds like a specific person. The FBI warns that they use AI-generated audio to impersonate public figures or personal relations to elicit payments, and FinCEN's November 2024 alert describes criminals impersonating an executive or other trusted employee to instruct staff to transfer large sums. At an advisory or brokerage firm, that can look like a call from a familiar client or partner asking for an urgent wire to a new account.

Off-channel communications are business messages sent through channels the firm has not approved or cannot capture, such as personal text messages, personal email or unarchived messaging apps. Under SEC Rule 204-2 and Exchange Act Rule 17a-4, the content of a message decides whether it must be kept, so a qualifying message on an uncaptured channel is a recordkeeping gap.

FINRA describes a synthetic identity as a legitimate Social Security number combined with a false name, address and date of birth. Fraudsters use these identities to open brokerage accounts that belong to no real customer. Because no victim notices and complains, synthetic accounts can stay open longer than accounts opened with a fully stolen identity, so firm controls at onboarding matter more.