Greg Kilminster
Head of Product - Content
PS4/24: PRA issues statement on review of rules
The Prudential Regulation Authority (PRA) has released a policy statement (PS)4/24 to provide details on its approach to rule review. This PS follows up on the consultation paper (CP) 11/23 – PRA statement on the review of rules.
As per the Financial Services and Markets Act 2000 (FSMA) sections 3RA and 3RB, the PRA is required to publish a statement of its policy on reviewing rules. This PS meets is published to meet that requirement.
The PS covers the PRA’s framework for conducting rule reviews, how it communicated its rule review work to the public, how stakeholders could participate in the process, and how the PRA intended to coordinate with other public bodies on rule reviews covering shared responsibilities.
The implementation date for this PS is set for 21 February 2024.
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EIOPA discusses EU AI Act’s impact on financial institutions
The European Insurance and Occupational Pensions Authority (EIOPA) has published an article discussing the ramifications of the European Artificial Intelligence Act (EU AI Act) on the European financial sector.
Background
The EU AI Act is a comprehensive legal framework designed to regulate AI systems across the EU. It applies to the entire AI value chain and mandates compliance obligations that are commensurate with the level of risk posed by the AI system to people’s safety, security, or fundamental rights. The Act is expected to come into effect in Q2-Q3 2024, and its obligations will take effect in stages.
Impact on financial institutions
The impact of the EU AI Act on financial institutions will depend on where their activities sit in the tiered compliance framework. Financial institutions using high-risk AI systems, such as AI-based creditworthiness assessment tools in banks and pricing and risk assessment tools in life and health insurance, will be required to adhere to heightened requirements. In addition, new obligations may arise for financial firms using general-purpose AI systems, such as large language models and generative AI applications, especially in the context of outsourcing. Lastly, financial institutions may have to ensure that the EU AI Act’s appropriate accountability and governance frameworks, risk management and control systems, quality management, monitoring, and documentation are in place when it comes into effect.
Wider considerations
The article also outlines the potential impact of the EU AI Act on existing regulations and the role of national competent authorities (NCAs) and supervising entities in assessing whether additional guidance may be required for specific use cases. It is anticipated that any requirements would primarily be developed and used in accordance with existing legislation, without additional legal obligations arising from the EU AI Act.
Additionally, the article discusses the interplay between the EU AI Act and other existing regulations and their impact on the use of AI for financial institutions.
This includes the Data Act and the Data Governance Act, the proposed Financial Data Access (FiDA) regulation, and the Digital Operational Resilience Act (DORA).
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Michael J Hsu remarks on FSB’s global regulatory framework for crypto-asset activities
Acting Comptroller of the Financial Stability Board (FSB) Michael J Hsu delivered opening remarks at the FSB Crypto Working Group held on 22 February 2024.
The working group was convened to discuss the implementation of the FSB’s global regulatory framework for crypto-asset activities and cross-border issues for stablecoins, with updates from leading financial regulators such as the Banco Central do Brasil, the United Kingdom Treasury and Financial Conduct Authority, Monetary Authority of Singapore, and the US Securities and Exchange Commission.
In his address, Hsu shared his perspective on the importance of coordination and collaboration in the supervision of global financial institutions, particularly in the context of crypto-asset intermediaries. He acknowledged that most multi-function crypto-asset intermediaries today operate without a consolidated supervisor.
Moreover, Hsu recognised the challenges in implementing consistent regulatory and supervisory approaches, primarily because the crypto industry continues to resist what it perceives as improper or over-burdensome regulation and oversight while jurisdictions compete for crypto business. He highlighted the risk that such competition poses, giving the industry leverage and forcing regulators to accommodate and compromise.
However, Hsu believes that collaboration and coordination among financial regulators can serve as an effective mitigant to the risk of over-accommodation. He noted that the FSB’s global regulatory framework for crypto-asset activities, which lays out recommendations to promote comprehensive and consistent regulatory and supervisory approaches, can support this effort.
He concluded by noting that sharing information with peer agencies and seeking a common understanding of the risks and opportunities in this space can help ensure that regulatory standards remain high.
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