More on AI...
Volume 15, Number 6
June 26, 2024
Advocacy News You Can Use
While the wheels of modernizing regulations may turn slowly, technology does not. Artificial intelligence, cloud computing, blockchain and other developments continue to disrupt the financial services landscape and consumer expectations. Oftentimes regulations lag behind these developments, unable to change as quickly as new technology is introduced. However, the regulations surrounding these tools (including the new risks) will impact credit unions well into the future.
As we survey the changing landscape, WOCCU is monitoring these regulatory proposals amongst international regulators closely and will continue to share the credit union message as they consider changes. Globally, we encourage credit unions in each country to have similar conversations with their local regulators as regulations are proposed at a national level. If you missed our past articles on the Basel Committee’s Report on the Implications of Digitalization of Finance on Banks and Supervision or the Artificial Intelligence Act in Europe, you can catch up here.
Artificial Intelligence Highlighted in New Report by BIS
The Bank for International Settlements (BIS) released a special chapter on Artificial Intelligence (AI) in its new Annual Economic Report of 2024. The increased use of AI has significant implications for the financial system and its stability. The report highlights the impact of AI on Central Banks and the need to anticipate AI’s impact across the economy. Looking forward, Central Banks will need to determine how best to utilize AI in their own operations, especially in the area of data and data governance. The quick rise in adoption of AI within the financial sector and larger economy implies there is an urgent need for Central Banks to quickly increase their understanding both as informed observers of technology advancements as well as users of the technology itself.
The report provides an overview of developments in AI and the underlying technology. It also examines the implications of AI on the financial sector as well as emerging challenges for Central Banks.
Click here to read the special chapter on AI.
Why this matters to your credit union: This report is another example of regulators increasing their attention on how AI (and other technology) is used in the financial sector. This report uniquely highlights the importance of central banks using the technology internally. It also emphasizes the risks all credit unions should be considering such as cyber risks, third-party reliance risks and legal risks. The urgency to regulate aspects of digitalization is increasing.
European Council Reaches an Agreement on GDPR Cross-Border Enforcement
The European Council (Council) reached an agreement on a common member states’ position on a new law intended to improve cooperation between national data protection authorities. The General Data Protection Regulation (GDPR) harmonizes data protection rights across Europe and applies to any organization that deals with personal data of EU citizens or residents, regardless of where they are based. To better facilitate GDPR enforcement this new law will require national data protection authorities to cooperate quickly when a data protection case concerns cross-border processing.
Once adopted, the regulation will provide tools for quickly handling the complaints filed by citizens or organizations. It also clarifies procedural deadlines and specific steps of an investigation, including the process for the adoption of a binding opinion by the European Data Protection Board (EDPB).
The Council will next begin negotiations with the European Parliament to agree on the final legislative text. Click here to learn more.
Why this matters to your credit union: While these new adjustments to the privacy regulation are focused on European countries, it is important to remember that GDPR applies to EU citizens or residents wherever they are based (including outside of Europe). GDPR is also a privacy standard reviewed by regulators in other countries and regions. These changes highlight the continued focus on privacy and the importance of protecting member data.
Basel III Reforms: New EU Rules to Increase Resilience to Economic Shocks
The European Council (Council) adopted new rules aimed at making financial institutions operating in the EU more resilient to possible economic shocks. The changes are intended to strengthen their supervision and risk management as well as sustainability in the banking sector. The new rules update the capital requirements regulation and directive that translate the Basel III standards into EU legislation.
The reforms added an “output floor” feature that limits the risk of excessive reductions in financial institutions’ capital requirements. The reforms also set a transitional regime for crypto assets and amendments to enhance the management of Environmental, Social and Governance (ESG) risks.
This is the last step of the adoption procedure. The amended capital requirements regulation and capital requirements directive will be published in the EU’s Official Journal. Member states will have 18 months to implement the directive into national legislation. The regulation changes will apply beginning January 1, 2025. Click here for more information.
Why this matters to your credit union: The fallout from recent bank failures continues to draw the regulators focus on financial institutions’ level of capital and ability to withstand economic challenges.
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Erin O'Hern |