The European Securities and Markets Authority (ESMA) has declared that beginning in 2027, it will prioritize the supervision of artificial intelligence (AI), tokenization, and other emerging financial technologies.
In a recent report, the ESMA noted that financial firms within the EU are increasingly leveraging AI and tokenized products to enhance their market positions. "Technological innovation brings benefits but also risks," the watchdog stated, highlighting the necessity of this focus.
The new supervisory initiative will involve mapping the use of AI and tokenized products by regulated firms, assessing selected companies, and evaluating governance, data reliability, and customer outcomes. This approach aims to ensure that these technologies are not just utilized in back-office operations but are integrated into core business activities.
Named "Innovation with investor safeguards," the program seeks to bolster regulators' capabilities to oversee new technologies and confirm that firms maintain appropriate governance structures, reliable data, and outcomes aligned with client interests.
In conjunction with this initiative, the European Central Bank (ECB) has recently made several announcements regarding tokenization and stablecoins in the cryptocurrency sector. Earlier this week, the ECB revealed plans to invest a portion of its reserves in tokenized securities, thereby gaining exposure to blockchain-based financial markets. This follows the launch of the Pontes platform, which connects digital ledger technology (DLT) infrastructure with traditional payment systems, distinct from the planned retail digital euro pilot set for 2027.
Additionally, the ECB and central banks from the 27 EU member states have called for a broader prohibition on crypto platforms offering yields, rewards, or returns on stablecoin investments, asserting that fiat-pegged digital assets should be treated as money rather than savings accounts.
In 2024, EU regulatory bodies will begin mapping the current and planned applications of AI and tokenization in client-facing products and processes, while initiating preliminary assessments of the most impacted firms. This marks a transition from establishing rules for crypto assets under the Markets in Crypto-Assets (MiCA) framework to a more comprehensive examination of how tokenized finance and AI are utilized across the securities sector.