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AI in Financial Services 4.0

The explosion of generative AI models and developments in agentic AI are driving a new wave of digital transformation. Regulators across the globe are striving to keep up, particularly in the highly regulated financial services sector. In the fourth edition of this report we partner with IBM, whose research demonstrates how AI-first institutions are already outperforming peers.

We highlight both the opportunities and challenges facing businesses deploying AI in core financial markets, offering a broad overview of the complex and fast-changing regulatory landscape, along with practical guidance for managing risk.

 

Key themes

1

The AI revolution in finance – opportunities and challenges

AI adoption is accelerating in financial services, a data-rich industry with a long history of machine learning. With advanced deployments of AI increasing, and significant process mapping already in place, the industry is primed to lead in generative AI, notably AI agents. But, given the highly regulated nature of the sector where consumer protection and market stability are regulatory priorities, firms must understand and manage the associated legal risks.
2

The global legal landscape for AI

The challenge for lawyers advising business is both to understand how existing legal and regulatory frameworks apply to AI and to keep up with new AI-specific law and regulation as it develops at an international, regional and national level.
3

AI and financial services regulation

As important as it is to keep one eye on future developments, when implementing AI systems today, financial services firms must do so within the constraints of the existing financial services regulatory framework.
4

Reconciling AI with global data protection laws

The interaction between AI and data protection legislation is complex and still not fully resolved. In the EU, regulators are considering fundamental issues such as when personal data taken from the internet can be used to train an AI. They also expect those using AI to apply high governance standards, including completing detailed impact assessments.
5

Regulating AI through competition law – key issues to consider

Antitrust regulators are generally focused on the impact of frontier technologies and developing digital markets on competition. How businesses use emerging technologies, especially AI, is emerging as a key theme for antitrust regulators across the globe. Regulators are not only considering whether competition law is fit for purpose with respect to the impact of AI – for example, with respect to algorithmic collusion, hub and spoke arrangements, tacit collusion and broader harms – but are also balancing these risks with a desire to fuel financial growth and technological innovation.
6

Practical guidance on managing legal risk in AI

Financial services organisations need to take a holistic, forward-looking approach to anticipating the impact of AI technology on their business. In practical terms, firms need to have a clear understanding of what they want to achieve in deploying any AI tech, and how it will work to achieve that goal, together with a clear plan for identifying and managing and associated technological, reputational and legal risks.

Global overview

Click the regions below to discover their regulatory approach to AI in financial services.

Light-touch, industry-led: The UK government previously announced that it intends to adopt a light-touch and industry-led approach, meaning that there won’t be specific legislation like the EU AI Act. However, in July 2024 government proposed a set of binding measures on AI and its intention to establish appropriate AI legislation.
Mostly self-regulated: The general regulatory approach is to foster AI innovation through the responsible use of AI. The financial regulator has issued AI-friendly guidelines and best practice for regulated firms, while the data regulator has also issued guidance for the use of personal data in AI. In May 2024, the Singapore government published a comprehensive Model AI Governance Framework for GenAI.

Additional resources

artificial human

Updated AI Toolkit - Ethical, safe, lawful: A toolkit for artificial intelligence projects

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Operational Resilience

Operational Resilience

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Handbook

EU Digital Package Handbook

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Silicon_GettyImages1394867825_M(1)

AI in financial services: Applying operational resilience rules to AI

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beams of light

Tech Legal Outlook 2025 Mid-Year Update

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IBM - The impact of AI

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IBM - From AI projects to profits

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IBM - The technology behind InstructLab, a low-cost way to customize LLMs

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