Regulatory Update

Navigating AI Compliance: Insights from the SIFMA C&L Regional Event in Charlotte

by Tiffany Magri

Subscribe to the Smarsh Blog Digest

Subscribe to receive a monthly digest of articles exploring regulatory updates, news, trends and best practices in electronic communications capture and archiving.

Smarsh handles information you submit to Smarsh in accordance with its Privacy Policy. By clicking "submit", you consent to Smarsh processing your information and storing it in accordance with the Privacy Policy and agree to receive communications from Smarsh and its third-party partners regarding products and services that may be of interest to you. You may withdraw your consent at any time by emailing

In the quickly evolving landscape of artificial intelligence (AI), financial firms have been met with new compliance challenges. Against this backdrop, professionals from the financial industry converged at the SIFMA C&L Regional event in Charlotte to discuss responsible implementation, regulatory compliance, and the potential benefits AI offers while mitigating potential risks with a focus on generative AI technology.

The panel was a deep dive into the considerations and best practices necessary for leveraging AI effectively and ethically. This event served as an informative platform, helping equip attendees with the knowledge and strategies necessary to adeptly traverse the AI terrain and frame compliance with evolving regulatory standards. As lawmakers and regulators continue to raise questions, the event offered a great space for dialogue and insights into AI applications.

Amidst the event's discussions, I noted certain key considerations that may significantly aid firms in pursuing AI compliance. These considerations offer valuable guidance to financial institutions seeking to embrace AI responsibly, helping to ensure they meet regulatory requirements while harnessing the power of AI as a transformational tool.

In the following sections, I highlight these considerations, providing a roadmap that can help financial firms successfully navigate the AI compliance landscape while maintaining compliance with regulatory standards.

Use case specifics

Disruption strategy: Examine use cases to determine what happens if an AI system needs to be taken offline or adjusted. How does this impact other systems, and what steps are taken to ensure data integrity and system functionality?

Business continuity: When AI systems exhibit unexpected behavior or "hallucinate," consider predefined protocols for taking the system offline. Consider the implications for business continuity and cybersecurity incident management.

Deepfake and impersonation risk: AI can be used to create convincing deepfake voices and videos. Prepare for scenarios where threat actors impersonate customers or executives through AI-generated content. Train employees to recognize and verify such communications to avoid falling victim to fraud or deception.

Business-led decision-making

While second-line functions like legal, compliance, and cybersecurity provide advice, the business units should ultimately make most decisions regarding AI use cases. This helps ensure that the decision-making process is balanced between assessing risks and realizing the value of AI. Recognize that some AI use cases may not be as valuable or risk-worthy as initially perceived. The panelist noted that it is essential to manage egos and ensure that decisions are based on a clear analysis of benefits, risks, and alignment with the organization's strategy.

Regulatory landscape

Compliance awareness: Firms must proactively stay informed about the evolving AI regulatory landscape. This involves understanding relevant laws, industry-specific rules, and any applicable municipal or state regulations.

Audit and transparency: Some regulations may require firms to conduct audits of their AI systems to ensure compliance, as well as to maintain transparency by disclosing how AI-driven decisions are made.

Transparency and accountability

Audit trail: Firms should implement robust audit trails to track how AI-driven decisions are made. This will be essential for regulatory compliance and for explaining AI outcomes to auditors.

Accountability structures: Establish clear accountability structures within the organization. Determine who is responsible for AI outcomes and how errors or unexpected results will be addressed.

Data quality

Data assessment: Carefully assess the data used to train AI systems. Understand the source of data, ensure proper permissions, and identify and mitigate biases that may exist in the data.

Data cleaning: Implement data cleansing processes to remove inaccuracies or inconsistencies in the training data.

Governance model

Scalable governance: Tailor your governance model to the size and complexity of your organization's AI initiatives. Consider whether existing governance structures need adjustment or if a dedicated AI compliance and governance framework is required.

Cross-functional involvement: Involve stakeholders from different parts of the organization, including control functions, technology, and business units, in the governance process.

Human oversight

Guardrail setting: Human experts should set guardrails for AI systems. They should deeply understand the specific problem AI is addressing to ensure alignment with the firm's goals and values.

Monitoring: Continuously monitor AI systems to ensure they operate within expected boundaries and take corrective actions if they deviate.

Metrics and monitoring

Establish metrics: Define key performance indicators (KPIs) and metrics for AI systems. Regularly monitor these metrics to assess the system's performance and identify any anomalies.

Adaptive management: Develop processes for adjusting data, algorithms, and overall AI strategies based on the observed metrics and performance.

Learning from mistakes

Error handling: Be prepared to learn from AI-related mistakes. Implement mechanisms to identify, analyze, and learn from errors or unexpected outcomes to prevent future occurrences and meet compliance needs.

Scope and use case

Clear definition: Clearly define your organization’s scope and intended use cases for AI. Avoid allowing AI to be used for purposes beyond its original scope to prevent "scope creep."

Employee training

Ethical use: Train employees on how to use AI systems ethically and responsibly. Ensure they understand the potential risks and benefits of AI tools and their role in ensuring AI compliance.

Cybersecurity threats: Continuously educate employees about the latest AI-related threats, including deepfake technology, and provide them with tools and knowledge to detect and respond appropriately.

Cybersecurity and AI compliance

Cybersecurity into playbooks: Just like any other technology, cybersecurity should be an integral part of an organization's AI strategy. Develop cybersecurity playbooks that outline how to respond in case of AI system vulnerabilities or unexpected behavior.

Adaptive cybersecurity: Cybersecurity strategies should adapt to evolving AI capabilities and threats. Stay informed about advancements in AI-driven cyberattacks and adjust cybersecurity measures accordingly.

Flow of AI data: Understand how data flows within your organization, particularly data generated or influenced by AI models. Map out data flows to prevent data from AI systems contaminating other tools or systems.

Data security: Ensure the security of AI-related data, especially if it's stored in a data lake. Regularly conduct penetration testing to identify and address vulnerabilities.

Malware prevention: Develop protocols to prevent the introduction of malware into AI data sets, which could compromise the AI system's integrity.

During the event, we also heard regulators highlight certain points regarding AI applications. Among these key takeaways, regulators emphasized gaining a comprehensive understanding of various AI technologies. They stressed the need for robust oversight of AI activities, with a particular focus on potential impacts on clients. Additionally, the regulators underscored the critical importance of AI explainability, which encompasses the formulation of policies and procedures and the diligent analysis of AI implementations to assess their effects.

As the financial industry rapidly adapts to AI's transformative potential, it's essential for financial institutions to develop comprehensive AI compliance strategies before diving into these technologies. This proactive approach not only helps prepare firms for the evolving regulatory environment but also equips them to thrive in an AI-driven future where tools are constantly evolving.

Share this post!

Tiffany Magri
Smarsh Blog

Our internal subject matter experts and our network of external industry experts are featured with insights into the technology and industry trends that affect your electronic communications compliance initiatives. Sign up to benefit from their deep understanding, tips and best practices regarding how your company can manage compliance risk while unlocking the business value of your communications data.

Ready to enable compliant productivity?

Join the 6,500+ customers using Smarsh to drive their business forward.

Get a Quote

Tell us about yourself, and we’ll be in touch right away.

Smarsh handles information you submit to Smarsh in accordance with its Privacy Policy. By clicking "submit", you consent to Smarsh processing your information and storing it in accordance with the Privacy Policy and agree to receive communications from Smarsh and its third-party partners regarding products and services that may be of interest to you. You may withdraw your consent at any time by emailing

Contact Us

Tell us about yourself, and we’ll be in touch right away.