AFME “mixing issues” in call for EU emerging tech focus

The Association for Financial Markets in Europe’s (AFME) is in danger of “mixing the issues” of data, technology, and regulation as it calls for focus from the EU, say market participants.

Neil Chapman, CEO at alternative data platform Exabel, tells FinTech Futures that the AFME conflates data sharing and technology in its latest report.

“I’m immediately struck by the risk of, and thereby importance of not, mixing issues related to data – and its responsible sourcing and collection – with issues relating to technology.”

EU regulations should be based on “core principles” rather than “technology or specific solutions”

A recent report from the AFME calls on the EU to prioritise emerging tech and more cross-sector data sharing across Europe to boost adoption.

“These are very distinct and different issues that might make interesting news stories, but which should be crowbarred from a regulatory perspective,” says Chapman.

Sarah Carver, head of digital at global consultant Delta Capita, agrees. She thinks any regulation the EU does decide on in or before 2024 should be based on “core principles” rather than “technology or specific solutions”.

In Carver’s opinion, this is the only way the EU’s five-year digital agenda will stay relevant “for the next five years”.

Why the AFME released the report

David Ostojitsch, the AFME’s director of technology and operations, tells FinTech Futures that EU policies which are too prescriptive could “put the brakes on emerging technologies”.

In its report, the AFME cites cryptocurrency, AI, and the cloud as the most important emerging technologies to home in on.

That’s because these technologies suffer the most regulatory scrutiny but offer the biggest opportunities for banks.

Schuyler Weiss, CEO of Swiss challenger bank Alpian, thinks the AFME report takes the right approach to regulation, data and technology.

He tells FinTech Futures that “regulation which opens up access to these enabling technologies” is “welcome”.

He adds: “The AFME’s new report has rightly identified that neutral legislation, a competitive playing field and global consistency are key.”

Crypto’s “unprecedented period of evolution”?

AFME’s Ostojitsch’s says the crypto industry is still “looking for that clarity”. The second Markets in Financial Instruments Directive (MiFID II), which landed in 2018, caused some crypto assets to qualify as financial instruments.

“What’s needed is that certainty it does qualify and amendments to existing regulation,” explains Ostojitsch. That’s why the report calls for a crypto asset taxonomy.

By defining cryptographic assets, the EU can shed more clarity on the real risk levels involved with dealing in crypto or servicing crypto clients. Once the cloud of confusion lifts, it’s likely crypto firms will see higher adoption rates.

We are living through “an unprecedented period of evolution across global markets” for crypto, says R3

Richard Olsen, founder of Switzerland-based fintech Lykke, tells FinTech Futures there is “a lack of understanding” around what firms can do with existing regulations in terms of crypto.

“Bitcoin has distracted people from the rest of the industry,” he says. He highlights that many firms still have not tokenised their financial assets. This is in spite of current regulations which allow it.

“What has been incredibly painful in the last few years is that blockchain has not been embraced [to solve] the problems now at stake,” says Olsen.

But Charley Cooper, managing director at blockchain fintech R3, thinks we are living through “an unprecedented period of evolution across global markets” for crypto.

Cooper cites the “public debate” currently happening across the continent with regards to a pan-European payments solution – which could be powered by blockchain – as an example of this.

He also points to the variety of countries exploring the benefits of central bank digital currencies (CBDCs). These include Thailand, China, Russia, Bermuda and the UK.

Balancing AI with the human

“The EU’s early focus on AI is welcome, and it’s really commendable,” says Ostojitsch.

“Currently it’s difficult to use more sophisticated AI because regulations don’t work around it.”

But rather than adding more regulation, the AFME’s stance is clear: do not over-regulate.

Michael Boguslavsky, head of AI at Tradeteq, says that one of the main risks around regulating AI is the scale barrier.

“AI solutions are often very scalable, and it is important that European firms are not hindered in achieving these scale-ups due to regulation,” he says.

“Ultimately, AI is just a tool used to improve an existing process […] This should be the key factor in determining the supervisory and regulatory approach to AI.”

Delta Capita’s Carver thinks AI isn’t just a “tool”, and argues there is more to the technology than this.

“There is an ongoing concern particularly in machine learning of algorithm bias,” she tells FinTech Futures.

A “one size fits all” approach “may stifle [AI] innovation”, says Sentifi

Boguslavsky does note the need to legally address “political and ethical principles” pertaining to AI. But he also warns that any regulation must avoid “adverse unintended consequences” which could hamper AI innovation.

For some of the industry, AI regulation should come down to a case-by-case basis. Marina Goche, CEO of alternative data provider Sentifi, says a “one size fits all” approach “may stifle [AI] innovation”.

She puts this down to “the speed at which data is being produced and the speed at which AI technologies are developing”.

But as Carver asserts, if this speed of growth outpaces human considerations, then the innovation achieved could rest on murky, potentially even unethical ground.

How the cloud stores data is still an issue

Cloud computing is a key priority of the AFME’s report. Ostojitsch does not explicitly point to the dominance of US cloud providers as a reason for this inclusion, though he agrees that this is an issue.

Instead, he says the cloud is “fundamental to broader digital transformation”.

“We just need to ensure the market is fair, isn’t restrictive, and is open to different providers,” he says.

Matthew Lempriere, the Asia Pacific and UK head at cloud firm BSO, thinks regulators need to understand cloud technology before they strap rules on it.

“One of the areas that has slowed cloud adoption is the need to meet regulatory standards around where and how data is stored,” Lempriere says.

Storage of data in the cloud then raises the issue of security. Many in the industry are still grappling with inefficient cloud control panels. As well as poorly built APIs in the cloud and misconfigured cloud storage buckets.

Check Point and Cybersecurity Insiders’ 2020 Cloud Security Report shows 75% of the industry are still “highly concerned” about public cloud security.

“To remove these barriers to cloud adoption, supervisory practices should be built around the technology,” says Lempriere.

This would certainly help to tackle the risks which come with misconfiguring the cloud itself, and the technology, like APIs, that plugs into it.

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