Global Trustee and Fiduciary Services Bite Sized Issue 12 2024

5 QUICK LINKS COSTS & CHARGES CSDR CRYPTOASSETS EMIR FINTECH FSB FUND LIQUIDITY MIFID II/MIFIR NBFI OPERATIONAL RESILIENCE SUSTAINABLEFINANCE/ESG T+1 ASIA NORTH AMERICA UNITED KINGDOM Global Trustee and Fiduciary Services Bite-Sized | Issue 12 | 2024 FSB FSB Assesses the Financial Stability Implications of Artificial Intelligence On 14 November 2024, the Financial Stability Board (FSB) published ‘The Financial Stability Implications of Artificial Intelligence’, a report outlining recent developments in the adoption of artificial intelligence (AI) in finance and their potential implications for financial stability. The FSB states that the widespread adoption and more diverse use cases of AI have prompted it to revisit its 2017 report on AI and machine learning in financial services. The report notes that AI offers benefits from improved operational efficiency, regulatory compliance, personalised financial products and advanced data analytics. However, AI may also amplify certain financial sector vulnerabilities and thereby pose risks to financial stability. The FSB says that several AI-related vulnerabilities stand out for their potential to increase systemic risk. These include: i. Third-party dependencies and service provider concentration; ii. Market correlations; iii. Cyber risks; and iv. Model risk, data quality and governance. In addition, the FSB says that GenAI could increase financial fraud and disinformation in financial markets. Misaligned AI systems that are not calibrated to operate within legal, regulatory, and ethical boundaries can also engage in behavior that harms financial stability. And from a longer- term perspective, AI uptake could drive changes in market structure, macroeconomic conditions and energy use that may have implications for financial markets and institutions. The report notes that existing regulatory and supervisory frameworks address many of the vulnerabilities associated with AI adoption. However, more work may be needed to ensure that these frameworks are sufficiently comprehensive. To this end, the report calls on the FSB, standard-setting bodies and national authorities to: (i) Consider how to address data and information gaps to better monitor AI adoption and assess the related financial stability implications; (ii) Assess whether current financial policy frameworks are sufficient to address AI-related vulnerabilities both at domestic and international level; and (iii) Enhance regulatory and supervisory capabilities, for example by sharing information and good practices across border and sectors as well as leveraging AI-powered tools. Link to Report here FUND LIQUIDITY IOSCO Publishes Consultation Report on Updated Liquidity Risk Management Recommendations for Collective Investment Schemes On 11 November 2024, the International Organization of Securities Commissions (IOSCO) published a Consultation Report seeking feedback on its revised recommendations for Liquidity Risk Management for Collective Investment Schemes (CIS) (the Revised LRM Recommendations), especially for open-ended funds. IOSCO is also consulting on complementary Guidance for the Effective Implementation of the Recommendations for Liquidity Risk Management (Implementation Guidance).