In a recent report entitled "Artificial Intelligence in Capital Markets: Use Cases, Risks, and Challenges," the International Organization of Securities Commissions (IOSCO) examines the rise of AI use in capital markets and how it impacts investors globally.
The report was developed by IOSCO's Fintech Task Force (FTF), which aims to enhance regulators' understanding of AI-related risks in financial products and services. "IOSCO's Report underscores the importance of understanding the transformative role of AI in capital markets and the accompanying risks," said IOSCO Chair Jean-Paul Servais. "As we move forward, it is crucial for regulatory bodies to continue to work collaboratively to ensure that innovation in financial technologies does not compromise investor protection, market integrity, and financial stability."
The report's findings, based on input from IOSCO members and industry participants, highlight five key insights. First, firms increasingly use AI for decision-making in robo-advising, algorithmic trading, investment research, and sentiment analysis. Second, AI advancements support internal operations, automation, communication, and risk management. Third, significant risks include malicious AI use, data integrity concerns, third-party dependency, and human-AI interactions. Fourth, industry practices are evolving, with firms either integrating AI into existing governance structures or creating bespoke frameworks. Fifth, regulatory approaches vary, with some authorities applying existing frameworks while others develop new AI-specific regulations.
"The next phase for IOSCO will be to consider, as appropriate, the development of additional tools, recommendations, or considerations to assist members in addressing the issues, risks, and challenges posed by the use of AI technologies in financial products and services," said FTF Chair Tuang Lee Lim.
IOSCO is seeking public feedback from financial market participants, AI developers, academics, and policymakers to inform future regulatory approaches. Comments are due by April 11, 2025.
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