Published on Aug 9th, 2023 |

Concerns and Suggestions for AI Use | Vigilant Insights

Vigilant Insights

Brief Introduction

Artificial Intelligence (“AI”) has become a major topic of discussion within the compliance industry.

As with most technology, it is inevitable that compliance departments will need to prepare for and mitigate the compliance risks involved.

Use of AI, such as ChatGPT, is generally discouraged currently by CCOs. However, in the interest of encouraging proactive compliance by clients, we will give insight to the potential risks of AI use along with some first steps to consider addressing these risks.

Potential Risks of AI Use

Potential Risks of AI Use

  • Potential breaches of contract related to confidentiality if client information is shared with AI as a third party.
  • Privacy policies and procedures for the Firm may not adequately cover the use of AI.
  • Additional notices to, and consents from, clients would be a minimum requirement.
  • There are risks of inaccuracies related to information obtained from AI, which can place the advisers at risk from a Regulation Best Interest standard and more.

First Steps to Consider

First Steps to Consider

  • Ensure appropriate level of oversight and quality control of use of AI.
  • Create a directly relevant and clear policy in the Firm’s compliance manual that is enforceable and creates proper supervision.
  • If any AI use is permitted, limit the users allowed to highly trusted key individuals in the Firm.
  • Provide full and prominent disclosure to prospects and clients when any content is procured through AI.
  • Conduct routine and satisfactory education for employees on the company policy related to AI.
  • Maintain detailed records of what content was generated by AI, how it was reviewed by supervising personnel, and how it was assessed for suitability.

Vigilant's Conclusion

Vigilant’s Conclusion

Firms should remain very cautious when implementing AI into their business model.

It is understandable that Firms will want to use cutting edge technology to help them achieve their business goals, especially if their competitors could be using the same technology. However, with the SEC already proposing a new rule related to AI use, it would be prudent for Firms to limit AI use until they have the documented compliance to defend it.

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