GFMA AI in Capital Markets, Letter

On Jun. 5, GFMA listed key considerations for AI in capital markets.

  • GFMA submitted letter dated May 28, 2024, to leadership of FSB, Basel, IOSCO, CPMI, and OECD regarding key considerations for artificial intelligence (AI) in capital markets.
  • In particular, the letter includes a set of industry views concerning key considerations regarding the use of, and the regulatory approach to, AI in capital markets.
  • Document dated May 28, 2024, received from GFMA Jun. 5, summarized on Jun. 8.
  • Follows IOSCO May 2024 issued OECD-FSB roundtable on AI in finance, see #213388.
  • Follows EP May 2024 regulation setting out harmonized rules on AI, see #204700.
  • Definition of AI
  • GFMA does not endorse a specific definition of AI since it is neither a narrow nor static technology, instead favoring a principles-based and outcomes-focused approach.
  • However, for reference, GFMA adopts OECD definition of AI systems, which describes AI as machine-based systems inferring outputs from input to influence environments.
  • This definition is widely accepted, utilized by major jurisdictions, including EU's AI Act.
  • Existing Standards & Frameworks
  • Existing global standards and frameworks, such as those from the OECD, have proven effective and should be adapted rather than creating new AI-specific standards.
  • If gaps identified, updates to existing governance frameworks should be explored first, with new standards considered only if necessary, complementary to existing processes.
  • GFMA encourages global standard setters to ensure alignment, avoid unintended consequences; call on the G20 to endorse this approach, consistent with previous commitments, to promote international cooperation and governance for AI.
  • Model Risk Standards & Frameworks
  • Capital markets firms adhere to robust model risk standards and frameworks, which already encompass AI applications and models used by these firms.
  • These frameworks undergo regular risk-based and outcomes-based reviews.
  • Should any gaps in these frameworks be identified in the future, GFMA is open to collaborating with authorities to update them accordingly/provide necessary guidance.
  • Third-Party Risk Management Standards
  • Recently, organizations like FSB, IOSCO, Basel have adopted robust third-party risk management standards: technology-neutral, principles-based, outcomes-focused.
  • These standards are adaptable to the evolving landscape of AI, showcasing the effectiveness of such an approach in managing new AI use cases.
  • As global standard setters and regulators delve into third-party risks associated with AI, GFMA suggests considering all actors and responsibilities within AI supply chain.
  • Clearly defining the roles of all actors in the AI supply chain can help increase transparency and facilitate application of existing risk-based standards on this topic.
  • New AI-Specific Regulation
  • AI-specific regulation poses risk of stifling innovation in financial services, other sectors globally, if regulations inconsistent, unclear, overly prescriptive across jurisdictions.
  • Many jurisdictions have already enacted their own AI-specific regulations, leading to potential fragmentation and hindrance of technological advancement.
  • Instead of introducing new AI-specific standards, regulators should focus on applying existing technology-neutral and outcomes-based frameworks to AI use cases.
  • Recent initiatives have highlighted the importance of this approach.
  • International regulatory alignment is essential to establish cohesive AI governance standards that promote safe, secure, trustworthy, and sustainable AI.
  • Collaboration between official sector, industry encouraged to develop risk frameworks, toolkits, fostering innovation while mitigating unintended impacts on financial stability.

Regulators Basel; CPMI; FSB; GFMA; IOSCO; OECD
Entity Types B/D; Exch; IA
Reference Lt, PR, 6/5/2024; Citation: AI Act;
Functions Compliance; Cyber; Financial; Legal; Operations; Outsourcing; Product Administration; Product Design; Reporting; Risk; Technology
Countries Global Regulator
Category Global Standards Body; Trade Association
Products AI; Fixed Income; Forex; Fund Mgt
Regions Global
Rule Type Guidance
Rule Date 6/5/2024
Effective Date 6/5/2024
Rule Id 214800
Linked to Rule :213388
Reg. Last Update 6/5/2024
Report Section International

Last substantive update on 06/08/2024