Regulatory guidance · Free download

What the SEC, FCA, and EU Regulators Expect from AI-Assisted Investment Analytics

A practical governance framework for CCOs and CROs evaluating AI analytics tools — covering audit trail requirements, reproducibility standards, data residency obligations, and the structural reasons general-purpose AI tools cannot meet them.

What's inside

SEC enforcement landscape
Four 2024 enforcement actions — the common fact pattern and what examiners now ask.
SR 11-7 applied to AI
How the Fed's model risk framework applies to LLM-assisted analytics and what it requires.
ESMA's four risk categories
Opaque decisions, hallucinated outputs, data leakage, inadequate oversight — and how each is tested.
EU AI Act high-risk classification
What Annex III means for investment analytics platforms and what documentation is required before deployment.
GDPR and data residency
Why sending fund data to OpenAI's US endpoints violates GDPR, and how Schrems II applies to AI API calls.
Implementation checklist
30-question compliance checklist for CCOs evaluating any AI analytics tool.
No fund data required
No sales follow-up
Cites primary regulatory sources

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Preview — Regulatory Framework

Six properties a compliant AI analytics workflow must demonstrate

Each is individually traceable to a specific regulatory requirement. These are not aspirational — they are enforceable.

01

Reproducibility

Basel II/III · SOX 302/906 · SEC exams

Same inputs, same output — every time. LLMs are temperature-sampled stochastic processes. They structurally cannot be deterministic.

02

Full audit chain

SR 11-7 · EU AI Act Art. 12 · FINRA 2026

Every run: input hash, method versions, parameters, user identity, timestamp, output. Immutable. Queryable by regulators.

03

Data residency

GDPR Art. 46 · Schrems II · DORA · BaFin MaRisk

EU client data sent to OpenAI's US endpoints violates GDPR. The analytics engine must run inside the firm's own environment.

04

Methodology documentation

SR 11-7 § Model development · EU AI Act Annex IV

Every method: formal specification, parameter schema, assumptions, limitations. Examiners must be able to point to the exact computation.

05

Human approval gates

EU AI Act Art. 14 · ESMA guidance · MiFID II Art. 25

Before AI-assisted output is distributed, a documented human review step must occur. The reviewer identity and timestamp must be logged.

06

Statistical integrity monitoring

SR 11-7 ongoing monitoring · SEC model validation

Anomalous output must be flagged before distribution. A metric 3σ below the firm's own history distributed silently is a compliance failure.