Iosco consults on AI/ML guidance for market intermediaries and asset managers

The Board of the International Organization of Securities Commissions is requesting feedback on proposed guidance to help its members regulate and supervise the use of Artificial Intelligence (AI) and Market Learning (ML) by market intermediaries and asset managers.

The use of these technologies may benefit firms and investors, such as by increasing execution speed and reducing the cost of investment services. However, it may also create or amplify risks, potentially undermining financial markets efficiency and causing harm to consumers and other market participants.

Consequently, regulators are focusing increasingly on the use and control of AI and ML in financial markets to mitigate the potential risks and prevent consumer harm. In 2019, the IOSCO Board identified AI and ML as an important priority.

The consultation report on The use of artificial intelligence and machine learning by market intermediaries and asset managers proposes six measures to assist IOSCO members in creating appropriate regulatory frameworks to supervise market intermediaries and asset managers that use AI and ML. The proposed measures seek to ensure that market intermediaries and asset managers have the following features:

• Appropriate governance, controls and oversight frameworks over the development, testing, use and performance monitoring of AI and ML;
• Ensuring staff have adequate knowledge, skills and experience to implement, oversee, and challenge the outcomes of the AI and ML;
• Robust, consistent and clearly defined development and testing processes to enable firms to identify potential issues prior to full deployment of AI and ML; and
• Appropriate transparency and disclosures to investors, regulators and other relevant stakeholders.

The proposed guidance reflects the standards of conduct expected of market intermediaries and asset managers using AI and ML. Although the guidance is not binding, IOSCO members are encouraged to consider the proposed measures carefully in the context of their legal and regulatory frameworks.
To prepare the report, IOSCO surveyed and discussed AI and ML with market intermediaries and asset managers. The report analyzes how firms use this technology, identifies the risks involved and describes how firms address them. It also includes a chapter on guidance for AI and ML published by supranational organizations, such as the International Monetary Fund and the Financial Stability Board.

IOSCO welcomes comments on this consultation report on or before 26 October 2020.

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