FINRAʼs outlook sees tech threat, tech promise

Finance firms are quickly moving ahead with generative artificial intelligence (AI) applications, but the Financial Industry Regulatory Authority (FINRA) has warned these apps could also “amplify the threats to investors and firms” from fraud and technology blunders. In its Annual Regulatory Oversight Report 2025, the self-regulatory organisation also highlighted the risks posed by round-the-clock trading.

Its warnings come amid major uncertainty over the future of financial regulation in the US, as President Donald Trumpʼs administration revamps financial and banking agencies and targets financial regulators. The Project 2025 policy document, which has not been officially adopted but guides the administration’s efforts, named FINRA among the agencies it wanted to curb.

FINRA made no direct mention of the change of guard in Washington — which always poses a challenge for the risk and compliance teams — but it appears the regulatory pendulum is swinging nearly as far as it has ever swung. Meanwhile, an ensuing constitutional crisis has made forecasts ever more difficult just as powerful technology is sweeping into finance at speed.

While business leaders have largely supported Trumpʼs deregulation effort, risk and compliance teams are troubled by its disruptive impact. Past events offer little guidance: in Trump’s first term, the main target was rules that followed known processes. In his second, entire agencies are being uprooted by edicts, devaluing relationships and institutional knowledge in the process.

Read the reports

Regulatory experts say despite this uncertainty, firms need to prepare for change and manage risk. In a client note, law firm Polsenelli said: “Regulatory previews served as potent prognosticators of supervisory surveillance to come” so firms needed to read the agenciesʼ reports if they wanted to allocate their supervisory resources intelligently.

“This is no time for financial institutions to give their compliance functions a sabbatical,” Polsineilli added.

FINRA’s annual outlook left most of its regulation and enforcement priorities the same, despite Trump’s calls for big changes. For example, Project 2025 sought to ditch FINRA’s consolidated audit trail — the end-to-end surveillance of trades from investor to stock exchanges the industry has painstakingly adopted in recent years. It also envisioned strict cost-benefit analysis in every rule change and a new requirement to submit to annual reviews before Congress, among other changes.

DEI scrubbed

However, FINRA has “quietly scrubbed its website of pages promoting the broker regulator’s racial justice and diversity, equity, and inclusion efforts”, Bloomberg Law reported. Goldman Sachs reportedly has also pulled back on its DEI references, whereas JP Morgan Chase has affirmed its commitment to the initiative.

“Employers can expect their DEI programmes to face resistance from both the federal government and private parties during President Trump’s second term,” law firm Skadden, Arps, Slate, Meagher & Flom said in the same client note.

FINRA did not respond to a request for comment on the DEI pullbacks, or on Project 2025ʼs proposed curbs. In a recent podcast, however, Kayte Toczylowski, vice presiden of member relations and education, said its focus on investor risks and firms’ practices “supports capital formation and is a primary example of how FINRA helps firms as a self-regulatory organisation”. The comment aligns with Project 2025, which said: “Financial regulators should remove regulatory impediments to entrepreneurial capital formation.”

Not a complete unknown

All of this leaves firms with little clear direction on rules and regulations. Where they are going regarding technology is clearer: financial services firms are investing heavily. For example, research firm IDC Corporate reported banks’ AI spending globally in 2024 was already $31 billion and predicted far more for the year ahead.

FINRA’s report warned against the risks of putting powerful AI technology into the hands of millions of users. Firms and investors are more vulnerable now that “criminal elements” have ready access to big data tools, it said. ChatGPT-style generative AI applications enable realistic digital impersonations that could enable outsiders to penetrate secure systems or to dupe investors, it warned.

Round-the-clock trading

Another new tech-related priority for 2025 calls for firms to prepare for extended trading hours as an area of heightened concern. The approval by the Securities and Exchange Commission (SEC) of 24/7 trading on the New York Stock Exchange was seen as a milestone event, and the practice will be rolled out in the year ahead.

Technology advances such as improved AI-enhanced surveillance and operating efficiencies have potential for new revenue streams. But the risk of market manipulation and hidden costs of mispriced securities in low liquidity overnight trading could be a problem, FINRA said. Competitive concerns have spurred action. Robinhood, the online broker with the largest retail customer base, has led the move to non-stop trading, just as it led the zero-commission phenomenon.

Speed traps

The speed to market for new financial products has become an area of heightened concern for FINRA for another reason. Firms wanting to jump-start their adoption of AI and other emerging technologies have increasingly relied on third parties, and FINRA warned firms not to introduce such add-ons before “establishing supervisory controls for a third-party technology vendor’s business impact, including assessments and contingency plans”.

FINRA said it will be “technology neutral” in its oversight, meaning it will not block innovation but neither will it give special treatment when technology causes rule violations or enables fraud. After moving cautiously on crypto in recent years, FINRA can be expected to move faster, following SEC cues in easing rules to suit Trump’s goals.

“As the federal regulator maps out its own priorities over the coming months, doing so is sure to affect FINRA’s focus on specific topics,” said law firm Goodwin Procter in a commentary. “This could not be more true than with respect to crypto assets and the manner in which the SEC (and FINRA) plan on regulating that space over the next four years.”

Financial firms “are wary about accelerating their pace of adoption due to several challenges, including uncertainty about regulations and concerns about data quality and security,”  consulting firm Bain & Co said in a cross-industry survey of AI adoption.

Firms will need new expertise in governance and enterprise-wide controls, it added, and advised firms to “maintain a dialogue” with regulators as they implement compliance, resources, data security and privacy controls in the year ahead. With regulators themselves in turmoil, finding who in government to talk to could be challenging.