In a new article in The Review of Securities & Commodities Regulation, litigation & enforcement partner Amy Jane Longo, counsel Cole A. Goodman and associate Rebekah Kim discuss the rapid incorporation of artificial intelligence into financial surveillance programs—a shift from reactive, lexicon-based monitoring to predictive and proactive surveillance—and how this trend is drawing heightened regulatory scrutiny of AI governance, particularly from the SEC and FINRA.
The authors highlight AI-driven surveillance's potential to reduce false positives, detect previously unobservable misconduct and strengthen the integrity of both traditional financial markets and emerging prediction markets. However, they caution that these advances carry corresponding risks around supervisory obligations, model risk management and human oversight, particularly as firms grow more reliant on autonomous and agentic AI systems.
The article also examines AI-driven surveillance for traditional financial products, the enforcement landscape and the unique compliance challenges of prediction markets. It underscores the importance of effective supervision and human oversight as firms move from AI-assisted to AI-driven surveillance.
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