IOSCO is pleased to announce the publication of a new substantive report that addresses the rise of Artificial Intelligence (AI) use in capital markets and its impact on investors globally.
While the use of AI technologies in capital markets is not a new phenomenon, AI technologies have recently experienced significant innovations, investment, and interest, for which generative AI is a key gamechanger. As market participants explore and test new possibilities, and as AI technologies continue to advance, the range of AI uses in capital markets will continue to expand.
Artificial Intelligence in Capital Markets: Use Cases, Risks, and Challenges was developed by IOSCO’s Fintech Task Force (FTF) to create a shared understanding among IOSCO members of the issues, risks, and challenges that emerging AI technologies used in financial products and services may pose to investor protection, market integrity, and financial stability, and to assist IOSCO members as they consider regulatory responses.
The Report’s findings are based on a combination of direct feedback from IOSCO’s members and industry participants. IOSCO now invites feedback from the public, including financial market participants, AI developers, academics, researchers, public policy experts, and other interested parties to inform its approach to developing tools which might help regulators combat the risks of AI in the future.
The Report identifies five key findings:
Firms are increasingly using AI to support decision-making processes in applications and functions such as robo-advising, algorithmic trading, investment research, and sentiment analysis. AI is also being used to enhance surveillance and compliance functions, particularly in anti-money laundering (AML) and counter-terrorist financing (CFT) measures.
Firms are using recent advancements in AI to support internal operations and processes through task automation; to enhance communications; and to improve risk management functions.
Risks most commonly cited with respect to the use of AI systems in the financial sector include malicious uses of AI; AI model and data considerations; concentration, outsourcing, and third-party dependency; and interactions between humans and AI systems.
Industry practices are evolving, with some financial institutions incorporating AI into existing risk management and governance structures, and others establishing more bespoke frameworks.
Regulatory responses to the use of AI in the financial sector are also evolving, with some regulators applying existing regulatory frameworks to AI activities, and others developing new regulatory frameworks to address the unique challenges posed by AI.
Jean-Paul Servais, Chair of IOSCO and Chair of the Belgian Financial Services & Markets Authority, said: "IOSCO’s Report underscores the importance of understanding the transformative role of AI in capital markets and the accompanying risks. 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."
Tuang Lee Lim, Chair of IOSCO’s Fintech Task Force and Assistant Managing Director of the Monetary Authority of Singapore, added: “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.”
IOSCO will continue to play a coordinating role regarding AI developments in the financial sector and to engage with other relevant international organizations, such as the Financial Stability Board (FSB).