Financial advice practices may have to take a cue from the industry’s self-regulator when it comes to the use of artificial intelligence and machine learning — because Finra is already implementing such technology for surveillance of member firms, according to news reports.

AI and machine learning could help organizations transition from rules-based methods to risk-based processes in surveillance, ThinkAdvisor writes. Finra, for example, collects data from up to 135 billion daily events, such as trade orders, quotes and actual trades, to create a so-called “cross-market data model,” Jon Kroeper, executive vice president of Finra’s quality of markets group who leads surveillance and investigations in the equity and fixed income markets, said at the regulator’s recent RegTech conference, according to the publication.

Finra’s surveillance program has 172 patterns, in which it has 308 direct-threat scenarios that cover general types of behavior, ThinkAdvisor writes.

When the program detects a threat scenario, it sends an alert to Finra’s analysts, who in turn evaluate the data to determine whether it merits an investigation of the firm in question, Kroeper said, according to the publication.

Some firms, such as Citadel Securities and Barclays, have started to implement machine learning and other technology to improve existing capabilities in surveillance, ThinkAdvisor writes. John Stecher, managing director and chief innovation officer at Barclays, said at the conference that the key to successful implementation of AI and machine learning is to enhance what human financial professionals do already, according to the publication.

“Leveraging these techniques across the board [can] free up people to actually do what they were trained to do. Which is solve interesting problems for customers, not just sit there and screw around on spreadsheets,” he said, according to ThinkAdvisor.

Nonetheless, even large firms like E-Trade are still only gearing up to use machine learning in surveillance, the publication writes.


John Davidson, senior vice president and global head of anti-money laundering at the firm, said at the conference that E-Trade is still a few years away from using machine learning widely, according to ThinkAdvisor.

Smaller broker-dealers, meanwhile, are only in the early stages of integrating machine learning into their practices, according to Davidson, the publication writes.