Featured Product

    ESMA Chair Speaks on Technological Transformation of Capital Markets

    September 19, 2018

    The ESMA Chair Steven Maijoor delivered a keynote speech on new financial technologies within and beyond capital markets, at the AFME/Euromoney Global Innovation Institute conference in Paris. The speech focused on technological change in capital markets, financial innovation, and the challenges and opportunities that new technologies present to regulators.

    One way in which technology may affect capital markets and investors is in the form of artificial-intelligence-powered investment and trade-execution strategies. Portfolio managers—especially systematic or "quant" funds— are using artificial intelligence and machine learning tools to detect subtle patterns in data to help predict price movements. Their aim is to generate alpha and, to do so, they comb through vast datasets from sources as diverse as satellite images and Twitter feeds. At present the amount of money in artificial-intelligence-based strategies is limited, thus any impact on financial stability is limited too. However, as artificial intelligence tools become more widely used, supervisors will want to keep monitoring this area. ESMA contributed to an FSB report, published last November, which noted the scope for new forms of interconnectedness resulting from the use of artificial intelligence in financial services.

    He added that one of the goals of a regulator is to ensure the integrity of markets. Algorithms can be used to help identify where people may be "cheating," such as acting on insider information or other bad conduct. This is an illustration of supervisory technology, or suptech. Regulators have, for example, been exploring how best to put in place data analytics and pattern recognition systems to study trading behavior to detect market abuse. While the industry is still at an early stage in applying tools such as artificial-intelligence-powered surveillance of market conduct, significant potential exists in this area. The flipside of the suptech coin is regtech: the use of new technology by financial market participants to meet their regulatory obligations such as reporting and risk management.

    Automation of regulatory and compliance functions by financial market participants can increase efficiency and reduce the scope for human error. Regtech is, for example, extensively used to meet the reporting obligations for investment firms under MIFID 2, allowing for more automation in data reporting. Common reporting standards, such as LEI, ISIN, and ISO20022 underpin the successful application of regtech. In conclusion, he emphasized that "regulators face a balancing act." They work to understand and respond to the risks that new technologies and entrants may introduce while not wanting to stifle innovation by restricting the use of certain technologies. When making this assessment, he believes it is important to consider that "common capital markets phenomena like a derivative, a mutual fund, and even a stock exchange once came to life as a financial innovation." 


    Related Link: Speech

    Keywords: Europe, EU, Suptech, Regtech, Artificial Intelligence, ESMA

    Related Articles
    News

    EIOPA Forms Consultative Expert Group on Digital Ethics in Insurance

    EIOPA established the Consultative Expert Group on Digital Ethics in Insurance to assist EIOPA in the development of digital responsibility principles in insurance.

    September 17, 2019 WebPage Regulatory News
    News

    FASB Proposes Taxonomy Changes Related to Topics 848 and 470

    FASB proposed taxonomy improvements for the proposed Accounting Standards Update on topic 848 on facilitation of effects of reference rate reform on financial reporting.

    September 16, 2019 WebPage Regulatory News
    News

    BoE Statement on Recalculating Transitional Measures Under Solvency II

    BoE notified that it will be willing to accept applications from firms to recalculate transitional measure on technical provisions (TMTP) as at September 30, 2019.

    September 16, 2019 WebPage Regulatory News
    News

    BIS Hosts Conference to Discuss Issues from Emergence of Stablecoins

    BIS hosted a conference in Basel to discuss policy and regulatory issues posed by the emergence of stablecoin initiatives backed by financial institutions and large technology companies.

    September 16, 2019 WebPage Regulatory News
    News

    BIS Paper on Embedded Supervision of Blockchain-Based Financial Market

    BIS published a working paper that investigates ways to regulate and supervise blockchain-based financial markets.

    September 16, 2019 WebPage Regulatory News
    News

    BoE Paper on Market-Implied Systemic Risk and Shadow Capital Adequacy

    BoE published a working paper that presents a forward-looking approach to measure systemic solvency risk.

    September 13, 2019 WebPage Regulatory News
    News

    HKMA Consults on Policy Module on Pillar 2 Supervisory Review Process

    HKMA is consulting on the revised Supervisory Policy Manual module CA-G-5 that sets out the HKMA approach to conducting the supervisory review process under Pillar 2.

    September 13, 2019 WebPage Regulatory News
    News

    PRA Publishes Waiver by Consent of Continuity of Access Rules

    PRA published a new waiver by consent to waive the Continuity of Access requirements contained in the Depositor Protection Part of the PRA Rulebook (DPP).

    September 13, 2019 WebPage Regulatory News
    News

    EBA Single Rulebook Q&A: Second Update for September 2019

    EBA updated the Single Rulebook question and answer (Q&A) tool with answers to three questions.

    September 13, 2019 WebPage Regulatory News
    News

    BoE Publishes Update on Meeting of Working Group on Risk-Free Rates

    BoE published the minutes of the July meeting of working group on sterling risk-free reference rates.

    September 13, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3827