ESMA will prioritize AI and tokenization oversight starting in 2027, focusing on governance and data reliability in financial firms.
The European Securities and Markets Authority (ESMA) has announced plans to prioritize the oversight of artificial intelligence (AI) and tokenization starting in 2027. This initiative comes as financial firms in the EU increasingly adopt these technologies to strengthen their market positions.
In its latest report, ESMA acknowledged that while technological innovation offers significant advantages, it also introduces potential risks. To address these concerns, the regulator will implement a new supervisory framework named "Innovation with investor safeguards." This program aims to enhance regulatory capabilities in monitoring emerging technologies and ensuring that firms adhere to governance standards, data integrity, and client-focused outcomes.
The initiative will include mapping the usage of AI and tokenized products by regulated entities, evaluating select companies, and reviewing their governance structures and data reliability. The goal is to ensure that these technologies are not limited to operational back-ends but are integrated into fundamental business functions.
Alongside ESMA's efforts, the European Central Bank (ECB) has recently made strides in the tokenization space. The ECB plans to invest part of its reserves in tokenized securities to engage with blockchain-based financial markets. This follows the introduction of the Pontes platform, which links digital ledger technology with traditional payment systems, separate from the upcoming retail digital euro pilot set for 2027.
Moreover, the ECB and central banks from the EU member states are advocating for a ban on crypto platforms that offer yields or rewards on stablecoin investments, arguing that digital assets pegged to fiat currencies should be classified as money rather than savings instruments. In 2024, EU regulatory bodies will start mapping current and future applications of AI and tokenization in products and services directed at clients, marking a shift from the initial regulatory framework for crypto assets under the Markets in Crypto-Assets (MiCA) to a broader examination of these technologies in the securities industry.
