June Regulatory Roundup: A whirlwind of change for European Finance

June was a whirlwind of regulatory developments, particularly in Europe, with significant implications for the financial services industry. The focus was clear: digital resilience, crypto assets, and the ever-evolving role of AI in finance. Let's break down the key takeaways:

MiCA & DORA: The Dynamic Duo of Digital Finance Regulation

The Markets in Crypto Assets Regulation (MiCA) and the Digital Operational Resilience Act (DORA) took centre stage, with the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) issuing a flurry of final reports, guidelines, and technical standards. These regulations are set to significantly reshape the digital finance landscape, with MiCA bringing crypto assets under regulatory oversight and DORA enhancing the operational resilience of financial institutions.

• MiCA: The focus was on suitability assessments, prudential matters, remuneration policies, and conflicts of interest for crypto-asset service providers. This signals a clear intent to bring crypto assets into the regulatory fold, ensuring consumer protection and market integrity.

• DORA: Delegated regulations on ICT risk management, critical third-party providers, and oversight fees were published, underlining the importance of operational resilience in an increasingly digital financial landscape. The DORA dry run further emphasised the need for firms to assess and enhance their preparedness for potential disruptions.

AI: Friend or Foe?

The European Commission's targeted consultation on Artificial Intelligence (AI) in the financial sector was a testament to its potential benefits. While acknowledging its transformative power, the Commission also addressed concerns about risks. The European Parliament's focus on AI risks in the workplace further underscores that AI will remain a key area of regulatory focus. The delicate balance between innovation and risk management is a challenge but presents a world of possibilities.

Other Key Developments

• Cybersecurity: The ESRB feeds back on cyber incident coordination, underscoring the urgent need for robust cybersecurity measures and incident response protocols.

• Outsourcing: The ECB's guide on outsourcing cloud services to cloud service providers provided much-needed clarity for firms navigating this complex landscape.

• Financial Crime: The Council's adoption of a new package of anti-money laundering rules is a clear signal of the continued commitment to combating economic crime. This regulatory action and others provide a sense of security in an ever-evolving financial landscape.

Beyond Europe

June also saw regulatory activity in other regions. The UK explored the legal framework for digital assets, while Hong Kong, India, Japan, Thailand, and Singapore made strides in areas like CBDCs and data governance. The US focused on tokenisation and illicit finance risks related to NFTs.

What's Next?

With MiCA and DORA coming into force, we can expect further regulatory guidance and enforcement actions in the coming months. AI's role in finance will continue to be a hot topic, with potential new regulations on the horizon, such as guidelines on using AI in credit scoring and risk assessment and measures to mitigate the potential biases and ethical concerns associated with AI applications in finance.