Algorithms in Armani: Navigating FINRA 24-09 and the SEC’s PDA Crackdown
(Generated using Google Scholar and ChatGPT; vetted using good old brain)
In a one-two regulatory punch, FINRA’s Regulatory Notice 24-09 and the SEC’s Predictive Data Analytics proposal (Release 2023-140) make it crystal clear that the Wild West phase of AI in finance is over. Every model, chatbot, or “magic algorithm” must now survive a gauntlet of conflict-of-interest testing, supervisory controls, and robust governance—or face the regulatory equivalent of being sent to bed without dessert. (FINRA, 2024) (SEC, 2023)
FINRA Notice 24-09 — AI Must Still Wear a Suit
- Technology-neutral rules still rule. FINRA reminds firms that existing supervision (Rule 3110) and communications (Rule 2210) apply whether advice comes from a human, an LLM, or a caffeinated squirrel. (FINRA, 2024)
- Key expectations: documented model-risk management, bias testing, vendor due diligence, disclosure of material AI limitations, and records that auditors can read. (links - JD Supra, Mayer Brown)
- Why it matters: FINRA is already folding Gen AI into its 2025 Regulatory Oversight Report—translation: exams will ask for your prompt logs.
- Real-world warning: FINRA flagged a rise in Gen AI-powered scams and deepfakes targeting brokerages—further proof that your controls need to out-smart the bots.
SEC Release 2023-140 — Algorithms on the Hot Seat
- The proposal: broker-dealers and advisers must “eliminate or neutralize” conflicts created by predictive data analytics (PDA) that nudge clients toward revenue-boosting behaviors. Think recommender engines, gamified trading apps, or any model that predicts your lunch break to push options trades.
- Obligations: inventory every covered technology, conflict analyses, adopt written policies, keep granular records, and—yes—explain it to the SEC in English.
- Status check: After a year of industry push-back, Chair Gensler signaled that staff are “considering modifications,” but withdrawal isn’t on the table. PLANADVISER Comments poured in through April 2025, and lobbyists are still circling. (links - National Law Review, SEC)
- Broader backdrop: Courts have recently clipped several SEC initiatives, fueling speculation that this rule could also face litigation fireworks. (links: Financial Times, Reuters)
Questions:
How do you test for bias and hallucination with your AI use at work?
Are you upskilling compliance staff to interrogate code, or hiring “prompt auditors”?
Additionally, My $0.02 for the students:
AI Is Your Study Buddy, Not Your Stand-In
AI tools are handy for brainstorming and polishing your work, but are not a license to switch off your brain. You’re still accountable for everything that goes in front of the grader. Here are the essentials.
Quick pointers
- Be transparent. If AI helped, mention it in a footnote or line of acknowledgment.
- Verify everything. Language models can invent sources as confidently as a toddler invents bedtime excuses. Cross-check facts.
- Keep your voice. Let AI suggest ideas or drafts, then rewrite so the final piece sounds unmistakably like you.
- Guard data. Do not paste private student records, client info, or exams into public bots.
- Follow the policy. Submitting unedited AI output counts as plagiarism and triggers the Academic Honesty code.
In practice
Use AI to brainstorm angles, outline a paper, spot grammar slips, or generate flashcards. Never copy-paste output straight into an assignment, never use it during closed-book exams, and never trust citations until you confirm them. When unsure, ask your instructor or the Academic Advisor before hitting submit. AI should amplify your thinking, not replace it.
Important References and Other Interesting Articles:
Bajowala, R. R. (2023, October 3). SEC comment period on proposed AI rules for broker-dealers and investment advisors closes. The National Law Review. https://natlawreview.com/article/sec-comment-period-proposed-ai-rules-broker-dealers-and-investment-advisors-closes
Clarke, J. (2025, February 3). Surveillance, Gen AI, and third-party risk: Key takeaways from FINRA’s annual oversight report for 2025. Global Relay Blog. https://www.globalrelay.com/resources/blog/surveillance-gen-ai-and-third-party-risk-key-takeaways-from-finras-annual-oversight-report-for-2025/
FINRA (2024, March 5). An evolving landscape: Generative AI and large language models in the financial industry [Podcast]. FINRA Unscripted. An Evolving Landscape: Generative AI and Large Language Models in the Financial Industry | FINRA.org
FINRA (2024, June 27). Regulatory notice 24-09: FINRA reminds members of regulatory obligations when using generative artificial intelligence and large language models.
FINRA (2025, January 28). 2025 FINRA annual regulatory oversight report. https://www.finra.org/rules-guidance/guidance/reports/2025-finra-annual-regulatory-oversight-report
Hyrkiel, T., & DiMauro, J. (2024, July 3). FINRA: AI and LLMs not exempt from securities laws and regs. Global Relay. https://www.grip.globalrelay.com/finra-ai-and-llms-not-exempt-from-securities-laws-and-regs/
Mulholland, P. (2024, May 24). SEC considering modified version of much maligned predictive data analytics proposal. PLANADVISER. https://www.planadviser.com/sec-considering-modified-version-much-maligned-predictive-data-analytics-proposal/
Orrick, Herrington & Sutcliffe LLP. (2024, July 1). FINRA issues guidance on broker-dealers using generative AI tools. JD Supra. https://www.jdsupra.com/legalnews/finra-issues-guidance-on-broker-dealers-9388263/
SEC (2023, July 26). SEC proposes new requirements to address risks to investors from conflicts of interest associated with the use of predictive data analytics by broker-dealers and investment advisers (Press Release No. 2023-140). https://www.sec.gov/newsroom/press-releases/2023-140
Tepley, P., & Potts, J. (2024, December 13). FINRA reminds financial firms how AI use poses significant risks. Bloomberg Law. https://news.bloomberglaw.com/us-law-week/finra-reminds-financial-firms-how-ai-use-poses-significant-risks
Vanderford, R. (2025, January 28). GenAI increasingly powering scams, Wall Street watchdog warns. The Wall Street Journal. https://www.wsj.com/articles/genai-increasingly-powering-scams-wall-street-watchdog-warns-a6592d54 wsj.com
Wilowski, M. (2023, July 26). SEC's new rules target algorithms and gamification tools that encourage trading. Investopedia. https://www.investopedia.com/the-sec-s-new-rules-target-trading-apps-that-use-predictive-algorithms-7565878
