Learning Objectives:

• Explain the EU approach to AI regulation in financial services.

• Explain the US approach to AI and technology regulation.

• Understand compliance challenges for financial institutions.

6.1 The EU Approach to AI Regulation

The EU follows a precautionary principle, regulating businesses concerning new technologies early and comprehensively to prevent potential risks of harm .

EU AI Act: Lays down harmonised rules on artificial intelligence, introducing obligations for high-risk AI system providers [citation:4,6]. The AI Act is part of the broader EU approach to technology regulation, which includes data protection and digital services laws .

EFAMA AI-System Assessment Tool: The European Fund and Asset Management Association (EFAMA) has launched an AI-system Assessment Tool to help asset managers integrate AI while ensuring compliance with the EU AI Act and related regulations like the GDPR, MiFIR, and DORA .

6.2 The US Approach to AI and Technology Regulation

The US approach to technology and AI regulation differs from the EU approach. The US has traditionally had relatively few sectoral regulations for information technologies, but this is changing .

Financial institutions face distinct challenges with respect to information technology regulations compared to finance-specific regulation, given their different subject matter, mechanisms, and territorial scope .

6.3 Compliance Challenges for Financial Institutions

Financial institutions find themselves frequently in the crosshairs of different laws and regulators, demanding that they :

• Protect individual privacy and financial data (under data protection and privacy laws).

• Make financial data more accessible (under competition laws and open banking regulations).

• Profile clients and report tax cheats and criminals to law enforcement authorities (under risk management and anti-money laundering laws).

• Refrain from profiling clients, except with voluntary consent or other lawful bases (under data protection laws).

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