The Capital Meets Policy Dialogue Regulators' Dialogue: Global AI Governance - The Much-Needed Lifeline for Startups?

 

 

Key Highlights:

1.    Introduction:

  • AI in financial regulation is at a crossroads of innovation and consumer protection.
  • Key global regulators, including representatives from the UK's FCA, Japan's JFSA, and India's IFSCA, share their perspectives on balancing innovation and integrity.

 

2.    AI and Regulation: Current Approaches:

  • UK (FCA):
    • AI use remains cautious; only 17% of surveyed financial services firms report adopting large language models.
    • Outcomes-based regulation (e.g., Consumer Duty) aims to future-proof oversight without prescribing rigid rules.
    • Experimentation via sandboxes fosters innovation while maintaining oversight.
  • Japan (JFSA):
    • No specific AI regulations yet; focus on public consultations to assess industry risks and benefits.
    • Promotes international engagement and visibility for AI startups.
  • India (IFSCA):
    • Regulatory sandbox allows supervised experimentation in areas like tokenization and cross-border payments.
    • Emphasises principles of fairness, transparency, and non-discrimination over prescriptive rules.

 

3.    Risks and Challenges:

  • Common Concerns:
    • AI Hallucination: Risks of misleading financial advice due to inaccuracies in generative AI.
    • Fraud and Deepfakes: Sophisticated threats like manipulated videos targeting financial markets and consumers.
  • Unique Observations:
    • Cross-border complexities and dependency on third-party AI vendors.
    • Lack of regulatory capabilities to assess advanced AI systems thoroughly.
    • Need for stronger international cooperation on standards and supervisory frameworks.

 

4.    Global Coordination:

  • Soft law through international bodies like IOSCO and BIS offers flexibility for global standard-setting.
  • Supervisory cooperation across jurisdictions is critical for monitoring risks associated with concentrated AI providers.

 

5.    Optimism and Caution:

  • Regulators stress the importance of fostering safe innovation without stifling startups or market development.
  • Liability, compliance, and consumer protection remain top priorities, especially for nascent fintechs.

 

6.    Future Directions:

  • Calls for evolving technical standards and third-party certification for AI systems.
  • Continuous engagement with industry to ensure rules remain adaptive to rapid technological advancements.
  • Enhanced focus on technology literacy alongside financial literacy for broader consumer protection.

 

Closing Remarks:

The session underscored the need for a balanced approach in regulating AI in financial services. Collaboration among regulators, industry stakeholders, and international bodies will be pivotal to navigating the trilemma of fostering innovation, ensuring market integrity, and maintaining regulatory clarity.


Speakers:

  • Dr. Jutaro Kaneko, Deputy Commissioner for International Affairs, Financial Services Agency
  • K. Rajaraman, Chairperson, International Financial Services Centres Authority
  • Sarah Pritchard, Executive Director of Supervision, Policy and Competition - Markets and Executive Director of International, Financial Conduct Authority

 

Moderator:

  • Prof. Chris Brummer, Founder, Bluprynt, the Crypto Disclosure Company & DC Fintech Week
 
 

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