On June 8, the New Jersey Bureau of Securities announced that its annual investment adviser examination is underway. This year, the examination focuses on online data protection and risks posed by AI. The bureau stated that it uses the examination as a risk assessment tool for nearly 800 New Jersey-registered investment adviser firms that manage investment accounts for New Jersey clients. The examination seeks information about firm organization, business practices, investment concentration, representatives associated with the firm, portfolio composition, compliance with regulatory requirements, and customer complaints.

The bureau stated that this year’s examination asks: (i) whether firms use AI, including for data gathering or research, or to generate investment portfolios or client recommendations; (ii) whether firms market, advertise, or otherwise represent that AI is used in the investment process; and (iii) how AI-related information is disclosed to clients. The examination also seeks information about online data protection. Specifically, it asks whether firms maintain written cybersecurity policies and procedures, conduct periodic employee training, and perform ongoing due diligence on third-party vendors’ cybersecurity practices. Each registered investment adviser must complete the examination electronically by June 30. The bureau stated that failure to comply may be deemed a failure to cooperate in violation of N.J.A.C. 13:47A-14.16 and may result in administrative action.