Navigating and Making the AI and DLT Paradigm Shift Sustainable

This report builds upon a paper published last year on the sustainability of distributed ledger technology (DLT) in the financial sector, where ESG (Environmental, Social and Governance) factors, technological and legal considerations, and regulatory approaches were analysed. This edition further considers how DLT-based solutions might shift from traditional models towards algorithmic governance.

The roundtable delved into the specific challenges and opportunities that arise with this shift. By exploring these key areas and considering the potential integration with Artificial Intelligence (AI) and eventually Internet of Things (loT), the roundtable sought to contribute to the creation of a sustainable, robust and secure future for this transformative technology.

The roundtable brought together policymakers, academics, and financial experts to navigate the legal and regulatory complexities arising from the transition towards Al and algorithmic governance in DLT-based finance.

The discussion focused on three key areas:

• The shifting landscape: The present status of Al and DLT in the financial sector was analysed, addressing issues such as sustainability, transparency, accountability and potential biases in algorithms. The prospective impact of wholesale Central Bank Digital Currency (wCBDC) on Foreign Exchange (FX) operations was also examined.
  
  
• Algorithmic governance: The discussion emphasised the necessity for DLT solutions and financial tokenization to comply with regulations such as Anti-Money Laundering (AML) and Know Your Customer (KYC) across different jurisdictions. Furthermore, ongoing research in this field was discussed, including efforts to develop guidelines for smart contracts. The necessity for a form of "algorithmic law" was discussed, referring to legal frameworks designed to govern automated processes and transactions facilitated by smart contracts. This is a field where traditional law is unable to adequately address the issues involved, and regulations must adapt to accommodate the evolving landscape of algorithmic governance in DLT-based finance.
  
  

• Connecting with Al: The potential for synergies between DLT, financial tokenization, Al, and loT was also addressed, with particular attention paid to the ways in which these technologies might converge to create intricate and interconnected financial ecosystems. One such example would be Al dynamically adjusting smart contracts based on market conditions, while loT devices automatically trigger transactions based on pre-defined parameters.