As a follow-up from its recent annual conference event, SIFMA’s 2024 C&L Annual Seminar Debrief features survey responses the association received from its event attendees (and some select other SIFMA members) about what general industry topics were top of mind for them.

Survey respondents were asked: “What industry topics are top of mind for you? (please select all that apply)”. Artificial intelligence (AI) came in top with 75% of responses.

This was followed by cyber-readiness at 65% and the general regulatory agenda at 62.5%.

Let’s look at some more granular details.

Artificial intelligence

Compliance and legal departments listed some use cases for AI at their businesses – either cases currently being used or under consideration. Top ones were:

• automated customer onboarding/KYC;
• document review;
• e-communication reviews;
• creating or analyzing contracts;
• fraud detection;
• aggregating regularory data sources; and
• content generation (policies/procedures, training).

AI models developing summaries of meetings or internal policies were mentioned as helpful, low-risk use cases. Any use of them to help employees interact with clients was considered higher risk and were being implemented more cautiously, if at all. Using predictive tools represents another high level of risk, and firms are mostly in the testing stage here.

A common theme from panelists speaking at the event was that firms and users should not have a total reliance on the technology. They should keep a human involved in the process to monitor and control the models.

Attendees of one AI-focused panel from the SIFMA event were asked to supply a bit more detail about their compliance and legal teams’ use or considered use of AI, and 40.7% said having a tool be able to provide an answer in plain English to a question about a company policy would be ideal. This was followed by 33.3% responding that the use of AI tools to summarize a single or compare multiple contracts would be most ideal.

In terms of governance considerations in using AI safely, panelists highlighted the following best practices:

• Have clear processes, policies, and procedures for usage.
• Systems should be catalogued and monitored.
• Oversight should include how data feeds are being used.
• Employees should be trained in usage, understanding the model’s limitations and risks.
• Disclosures should be clear and detailed as to which tools were used to avoid AI washing.
• Specific to sell-side research, it was advised to review and clarify a firm’s terms of use for parties receiving/using the firm’s research to prevent third parties from using research content to train LLMs without consent.

Remote inspections

Specific to the FINRA agenda, the survey asked “Do you plan to participate in FINRA’s Remote Inspections Pilot, and if not, why?” The majority said no (69.2%) and (as you’d suspect) 30.8% said yes. The reasons why people said “no” were: “Not applicable” (66.7%) and “the reporting burden is too great” (23.8%).

The survey then asked: “How many Residential Supervisory Locations do you plan to register?” The majority said “Under 100” (70.6%) – which was followed by the answer choice “500 and over” at 17.6% of responses.

Reg BI

The one survey question specifically geared to Regulation best Interest (Reg BI) was: “Since the effective date of Reg BI in June 2020, how has the volume of recommendations of complex products to retail investors at your firm changed?”

The majority said “About the same” at 52.9%. This was followed by “Not sure” at 41.2% of responses.

The regulatory environment

SIFMA asked attendees how concerned they are about the SEC’s regulatory agenda; 95% of respondents said they were concerned, with 52.5% being extremely concerned and 42.5% somewhat concerned.

In terms of what more specifically concerns them, the majority said the speed of the proposals and lack of time to analyze potential impacts came in on top at 86.8%. This was followed by 65.8% each for potential market impacts of all the proposals done together and potential operational risk arising from implementing all of the proposals.

SIFMA says that operational risk concern has been rising in its surveys.

The survey then asked to focus on equity market structure in terms of the SEC’s proposals. Respondents said timelines for implementing multiple proposals and the need for a lookback process to assess impacts and cost concerned them most (85.2%). This was followed by the SEC’s best execution rule specifically (55.6%) and the interconnectedness of the proposals (51.9%).