5 Compliance Risks of Using AI for Financial Advisers

Many financial institutions are adopting AI tools to improve their productivity and deliver quicker results to shareholders and clients. However, financial advisers who use AI also risk violating critical compliance rules. They must manage these risks to avoid potential issues with data privacy, cybersecurity, regulatory scrutiny, recordkeeping and information integrity.

Compliance Risks of AI in Finance

The following are five primary compliance risks associated with using AI in finance, along with tips for financial advisers to avoid them.

1. Data Privacy

One major compliance risk is privacy. Financial institutions store sensitive client financial data, and companies may use it to train AI models, which violates the Securities and Exchange Commission’s (SEC) Regulation S-P. Using real customer information may constitute a breach, which causes banks further trouble and, in some cases, the loss of business.

To avoid violating this regulation and protect client data, financial advisers should create an AI policy that clearly outlines rules for handling sensitive information. For example, any identifying information, such as a Social Security number or full government name, should not be included in the model. This measure protects customer data from public access.

Some AI companies implement privacy and security protocols into models before giving them to businesses. Advisers can search for these specific tools to further enhance privacy.

2. Cybersecurity Threats

Cybersecurity is another compliance issue associated with AI usage in many industries. Without adequate protection, external hackers can access financial systems to breach data. One way is through an AI-driven phishing campaign in which a hacker poses as a client or trusted adviser and tricks the recipient into divulging personal information. The government may hold the institution liable if it failed to implement cybersecurity protocols to protect against this possibility.

To avoid breaking this compliance rule, financial advisers must implement strict cybersecurity protocols across the institution’s online presence. It is especially important in places with sensitive data. Advisers can encrypt information as it travels and require multiple login methods to create additional barriers against hackers. Employee training to identify potential attacks is key to help prevent phishing campaigns.

3. Regulatory Scrutiny

Missing regulation updates as they come out is another compliance risk. Since AI is relatively new and constantly evolving, rules are lagging. However, organizations like the SEC are currently examining AI use and creating guidelines. When producing information with AI, advisers must still protect the client’s best interests. If they miss a regulation, the institution's data and reputation may be at risk.

The main way to avoid regulatory scrutiny is to be aware of current AI rules and those that may be implemented in the future. The SEC held a meeting on March 27, 2025, to discuss AI’s use, specifically in financial institutions. Many regulatory bodies are beginning to examine and update the rules as AI advances. Financial advisers must stay up to date to avoid violations.

4. Recordkeeping Accuracy

A great perk with AI is its ability to take notes and summarize financial meetings, but these materials are now considered official records under SEC Rule 204-2. While parts of this rule were amended in 2024, AI summaries are still considered official, and advisers must record them as such. Those who throw them away or fail to file them accurately run a real compliance risk.

Financial advisers can avoid this risk by capturing AI prompts and outputs in archiving systems. If AI summarizes a meeting, the entire transcript, along with the summary, must be included in the records to comply with regulations and simplify potential audit trails. Advisers can make adjustments to unclear or inaccurate summaries before filing. However, it is beneficial to keep both copies and provide explanations for each change.

5. Information Integrity

The final compliance risk associated with using AI in finance is information integrity. Sometimes, AI produces a hallucination, which means it gives fake or inaccurate information. This can become risky when performing financial analysis or giving clients advice. Because advisers handle sensitive matters, AI hallucinations can lead to poorly informed decisions or incorrect analyses, risking the institution and the customer.

The key to mitigating this risk is to double-check all AI outputs thoroughly. If information seems inaccurate, financial advisers must identify the issue and remedy it before making a decision or advising a client. AI is a valuable tool, but it is not a replacement for human intellect. It still needs oversight to run properly and avoid compliance risks.

Protect Against Compliance Risks

While AI tools benefit institutions in many ways, they also bring compliance risks that financial advisers must avoid. A good approach is to provide adequate training, update AI policies and continuously oversee machines to avoid these threats. While AI models increase productivity, advisers must be vigilant to protect the bank’s integrity.