International Organization of Securities Commissions Proposes Artificial Intelligence Requirements for Market Intermediaries and Asset Managers

The International Organization of Securities Commissions has issued a consultation on proposed guidance on the use of artificial intelligence and machine learning by market intermediaries and asset managers. The draft guidance is intended to assist IOSCO member jurisdictions to develop appropriate regulatory frameworks to mitigate the risks arising from the increased use of AI and ML by financial institutions. Comments on the draft Guidance can be submitted until October 26, 2020.

Following industry engagement, IOSCO determined that firms are encountering risks and issues related to governance and oversight; algorithm development, testing and ongoing monitoring; data quality and bias; transparency; outsourcing; and ethical concerns. IOSCO is proposing guidance that would require firms to:

• have designated senior management responsible for the oversight of the development, testing, deployment, monitoring and controls of AI and ML;
• adequately test and monitor the algorithms to validate the results of an AI and ML technique on a continuous basis;
• have the adequate skills, expertise and experience to develop, test, deploy, monitor and oversee the controls over the AI and ML that the firm utilizes;
• understand their reliance and manage their relationship with third party providers, including monitoring their performance and conducting oversight;
• disclose meaningful information to customers and clients around their use of AI and ML that impact client outcomes and report to regulators on their use of AI and ML; and
• have appropriate controls to ensure sufficient data quality to prevent biases.

View the consultation paper.

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