The use of artificial intelligence in financial services, particularly for risk assessments, has seen significant growth over the past three years.

While AI tools, especially large language models (LLMs), offer substantial benefits for financial advisors, they also introduce new risks that regulators are now addressing.

Regulatory bodies like FINRA and the SEC are emphasizing the need for firms to closely monitor technology vendors that have integrated AI into their services.

Concerns have been raised about 'AI washing,' hallucinations from models like ChatGPT, and ethical data use in marketing, prompting calls for greater scrutiny.

In March, the SEC took action against two advisory firms for misleading the public regarding their AI usage, highlighting issues related to AI hallucinations and deepfakes.

Brad Ahrens from FINRA stressed the importance of understanding both the opportunities and risks associated with generative AI at a recent advertising regulation conference.

AI tools can automate the analysis of legal guidelines and compliance issues, helping organizations stay updated with regulatory changes.

Ascent noted that AI can perform differential analysis for risk identification and suggest remedies, but it requires safeguards against bias and data inaccuracies.

Recent advancements enable the analysis of large amounts of unstructured data from various sources, enhancing the accuracy of risk and fraud assessments.

AI models learn from interactions, improving their accuracy over time and shifting risk management from a reactive to a proactive approach.

Experts like Michael Thirer emphasize that AI should be employed with transparency, explainability, and accountability to foster safety and trust.

Anna Shute from Qkvin highlighted the critical nature of risk management in regulated sectors like financial services, especially amid rising threats and uncertainties.