FINRA Releases New Problem Codes & AI White Paper

FINRA Releases New Customer Complaint Problem Codes

FINRA is adding two new Rule 4530 Problem Codes related to SEC Regulation Best Interest (Reg BI) and Form CRS, and making related amendments to the existing Rule 4530 Problem Code related to suitability. Beginning July 18, 2020, firms can use new Problem Code 16–Reg BI and new Problem Code 17–Form CRS, when applicable, to report customer complaint information and required documents.

FINRA Rule 4530 (Reporting Requirements) requires member firms to report information regarding written customer complaints. As a part of the reporting process, FINRA members are required to select the appropriate Rule 4530 Problem Code when reporting quarterly statistical and summary customer complaint information and on the form that is completed when filing required documents online.

Aside from the addition of new Problem Codes, FINRA is retiring the Problem Code relating to the Department of Labor’s vacated suitability rule and making other non-substantive changes to existing Problem Codes.

To read the complete Regulatory Notice, click here.

FINRA Releases White Paper on Artificial Intelligence (AI)

With more and more broker-dealers deploying AI-based applications across different functions of their organizations, back in July 2018, FINRA solicited comments from the industry on the potential challenges associated with using and supervising AI applications at broker-dealer firms. In response, commenters recommended that FINRA undertake a broad review of the use of AI in the securities industry to better understand the varied applications of the technology, their associated challenges, and the measures taken by broker-dealers to address those challenges.

Based on this feedback, FINRA, through its Office of Financial Innovation (OFI), engaged in an active dialogue with the industry over the past year and held meetings with over two dozen market participants, including broker-dealer firms, academics, technology vendors, and service providers to learn more about the use of AI in the securities industry.

As a result of these conversations, FINRA recently released a white paper summarizing key findings from FINRA’s review in three sections:

– Defining the scope of AI;
– Areas in which broker-dealers are evaluating or using AI (including communications with customers, investment processes and operational functions); and
– Regulatory considerations for AI-based tools.

To read the complete white paper, click here.