IOSCO Issues Report on Evolving Use of AI in Capital Markets

In a new report, the International Organization of Securities Commissions ("IOSCO") described emerging uses of artificial intelligence in the capital markets and highlighted the "potential benefits but also potential risks."

In the report, the result of "surveys, stakeholder outreach, and literature reviews," IOSCO found that: (i) "firms are increasingly using AI systems to support decision-making processes in applications and functions such as robo-advising, algorithmic trading, investment research, and sentiment analysis;" (ii) firms are using AI "to enhance surveillance and compliance functions, particularly in anti-money laundering and counter-terrorist financing;" (iii) firms are increasingly using AI to support internal operations "through task automation; to enhance communications; and to improve risk management functions; and (iv) firms are "incorporating AI into existing risk management and governance structures, and others establishing bespoke AI risk management and governance frameworks."

IOSCO highlighted commonly cited risks, including risks from: (i) malicious uses of AI; (ii) model and data concerns; (iii) "concentration, outsourcing, and third-party dependency;" and (iv) human to AI system interaction. IOSCO also noted that regulators were "applying existing regulatory frameworks to AI activities, [but] others [were] developing bespoke regulatory frameworks to address the unique challenges posed by AI."

IOSCO requested comments on the report and said, "[t]he next phase of IOSCO's AI work will be to consider, if appropriate, the development of additional tools, recommendations, or considerations to assist IOSCO members in addressing the issues, risks, and challenges posed by the use of AI in financial products and services."