BIS Insights on Regulating AI in the Financial Sector: Challenges and Opportunities
On 12 December 2024, the Bank for International Settlements (BIS) published FSI Insights No. 63, titled “Regulating AI in the Financial Sector: Recent Developments and Main Challenges.” The report examines and elaborates on the rapid adoption of AI in banking and insurance sector, highlighting its transformative potential and associated risks. It outlines a regulatory framework to balance innovation with financial stability, addressing governance, ethical concerns, and sustainability challenges.
- AI is increasingly used for customer support, fraud detection, credit scoring, and insurance underwriting, improving efficiency and decision-making.
- Generative AI has accelerated adoption but introduced heightened risks, including ethical issues, biases, and dependency on third-party providers.
- The complexity and opacity of AI models amplify risks, such as perpetuating biases in credit and insurance decisions due to reliance on historical data.
- Dependency on global tech firms for AI infrastructure poses systemic risks, with calls to extend regulatory oversight to technology suppliers.
- The BIS recommends stronger governance frameworks, requiring clear accountability, senior management oversight, and “human-in-control” processes to mitigate risks.
- Harmonising AI regulations across jurisdictions has become important, as varying definitions and standards complicate international compliance.
- Consumer protection measures are essential to prevent discriminatory practices and ensure fairness in AI-driven financial decisions.
- The report discusses AI’s growing energy demands and raises concerns about carbon emissions and sustainability, which remain unaddressed in existing frameworks.
- BIS advocates for international collaboration to create a standardised, risk-based regulatory framework for AI use in finance, ensuring innovation aligns with global ethical and environmental goals.
To read this news in detail click here
Hong Kong Monetary Authority Announced Schedule for Financial Announcements
On 31 December 2024, the Hong Kong Monetary Authority (HKMA) published its January 2025 schedule for financial announcements. The HKMA, tasked with maintaining monetary and banking stability, will provide updates that offer insights into Hong Kong’s economic resilience, monetary policy, and financial infrastructure.
- On 7 January 2025, release of Hong Kong’s latest foreign currency reserve asset figures, reflecting the region’s ability to support its currency and economic resilience.
- Announcement of Results of the tender for Exchange Fund Bills (Issue Nos. Q2502 and H2531), crucial for liquidity management and monetary operations.
- On 14 January 2025, publication of the Hong Kong Analytical Accounts of the Exchange Fund, detailing the fund’s financial position and operations for greater transparency.
- Official press releases will accompany these updates, providing further information of the HKMA’s financial and policy decisions.
To read this news in detail click here
MAS Encourages Use of Fit Notes and E-Hong Baos for a Greener Lunar New Year
On 2 January 2025, the Monetary Authority of Singapore (MAS) announced initiatives to promote the use of Fit notes and e-hong baos for the Lunar New Year, aimed to reduce carbon emissions and support sustainability.
- Online pre-booking of Fit notes starts on 7 January 2025 through DBS, OCBC, UOB, and other banks.
- Collection of pre-booked notes and walk-in exchanges begins on 14 January 2025 for seniors aged 60 and above and persons with disabilities.
- Participating banks will expand the availability of pop-up and branch ATMs dispensing Fit notes for added convenience.
- In 2024, over 11.7 million Fit notes were exchanged, saving approximately 408 tonnes of CO₂ emissions.
- E-hong baos continue to grow in popularity as an eco-friendly and convenient way to send festive well-wishes.
- MAS encourages greener practices to preserve traditions while reducing environmental impact, aligning with Singapore’s broader sustainability goals.
To read this news in detail click here
Hong Kong Solicitor Held Guilty of Breaching HK SFC’s Secrecy Rules
On 2 January 2025, the Hong Kong Securities and Futures Commission (HK SFC) announced that solicitor Mr Tse Yin Fung was convicted for breaching secrecy provisions under the Hong Kong Securities and Futures Ordinance (HK SFO). Tse pleaded guilty and was fined HK$ 25,000, in addition to covering the HK SFC’s investigation costs.
- Tse, principal of O Tse & Co., disclosed confidential information on 9 February 2021 to two individuals regarding a restriction notice issued by the HK SFC to his client.
- The notice, prohibiting a brokerage firm from dealing with certain assets, was part of an investigation into suspected ramp-and-dump schemes.
- Sections 378(7) and 378(11) of the HK SFO prohibit unauthorised disclosure of confidential information, with penalties of up to HK$ 1 million and two years’ imprisonment upon conviction on indictment.
- This is the first conviction of a solicitor under these provisions, highlighting the legal obligation of professionals to maintain confidentiality in regulatory investigations.
- The HK SFC’s investigation addressed the growing use of social media in stock market fraud, where fraudsters mislead investors to inflate share prices artificially.
To read this news in detail click here
US SEC Chair: Registered PCAOB Inactive Firms Under Scrutiny with New Registration Withdrawal Rule
On 2 January 2025, US SEC Chair Gary Gensler announced a rule change approved by the SEC, introduced by the PCAOB, requiring the automatic withdrawal of registration for accounting firms that fail to meet compliance requirements for two consecutive years. This measure aims to enhance the PCAOB’s registry integrity and ensure public confidence in accounting oversight.
- The rule applies to firms failing to file annual reports (Form 2) or pay fees for two consecutive years, initiating a formal withdrawal process.
- It ensures inactive or non-operational firms cannot misrepresent themselves as PCAOB-registered entities, maintaining public trust in the registry.
- Among the 1,544 currently registered firms, 80 have not complied in 2022 and 2023, nor issued audit reports for any public company issuer from January 2021 to August 2024.
- These firms are deemed defunct or inactive, necessitating removal to safeguard registry credibility.
- Affected firms have a 60-day grace period to notify the PCAOB of intent to remain registered and resolve compliance issues; failure results in finalised withdrawal.
- The rule marks the culmination of years of review by the PCAOB, addressing persistent non-compliance among registered firms.
- Chair Gary Gensler highlighted the contributions of PCAOB staff and SEC divisions in implementing this regulation, reinforcing transparency and public trust in financial oversight.
To read this news in detail click here
IMF Publishes Blog on How Artificial Intelligence Will Affect Asia’s Economies
The IMF’s blog on 5 January 2025 explores the implications of AI on labour markets in the Asia-Pacific region, discussing the potential productivity and innovation gains alongside risks of deepening inequality within and between nations. Advanced economies are better positioned to benefit from AI, while emerging markets face challenges due to limited infrastructure and workforce readiness. The blog calls for proactive policies to address disparities and ensure AI benefits are equitably distributed.
- The blog is based on findings from the October 2024, Asia-Pacific Regional Economic Outlook.
- Advanced economies like Singapore lead in AI adoption due to strong infrastructure and skilled labour, with about 60% of jobs affected.
- AI complements half of these roles by improving productivity but risks displacement or wage reductions for the other half.
- Emerging and low-income countries face less immediate disruption but lack readiness to leverage AI, risking further inequality.
- Stark disparities exist between nations, e.g., 40% of Singaporean jobs are AI-complementary, compared to 3% in Laos.
- Professional and technical roles, typically higher-paying, stand to gain the most from AI, benefiting men disproportionately.
- IMF recommends social safety nets, reskilling programmes, and revamped education systems to address AI’s workforce impacts.
- Ethical AI regulations and data protection frameworks are essential to mitigate risks and ensure responsible use.
- Without targeted interventions, AI’s disruptive effects could outpace its benefits, particularly in unprepared sectors and countries.
To read this news in detail click here
Former Texas Resident Leena Jaitley Ordered to Pay Millions Following US SEC Fraud Complaint
On 7 January 2025, the US SEC announced that the US District Court for the Western District of Texas issued a final judgment against Leena Jaitley on 12 December 2024 for defrauding investors through fraudulent websites. Leena Jaitley is ordered to pay financial penalties and permanently barred from violating securities laws.
- Leena Jaitley operated two fraudulent websites, Managed Options Trading and Options by Pros, between 2018 and 2021, falsely claiming the use of proprietary trading methodologies and skilled New York-based traders.
- She worked alone from her Austin home, occasionally involving her father, who had no professional trading credentials.
- At least 15 investors lost more than $800,000 in principal through high-risk trades, with total losses, including fees, exceeding $1.4 million.
- The US SEC filed its complaint on 20 September 2021, detailing fabricated testimonials, guarantees of extraordinary profits, and misrepresentations.
- On 3 January 2024, the court ruled Jaitley had violated multiple anti-fraud provisions under the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940.
- The final judgment on 12 December 2024, permanently barred Leena Jaitley from future violations of securities laws and ordered her to disgorge $672,833 in ill-gotten gains, $158,835 in prejudgment interest, and an equivalent amount in civil penalties.
- The US SEC’s investigation was led by Christian Ascunce, Greg Hillson, Charlie Divine, and Zachary Avallone.
To read this news in detail click here
US CFTC Chairman Rostin Behnam Announces Departure After Seven Years of Leadership
On 7 January 2025, Rostin Behnam, Chairman of the US Commodity Futures Trading Commission (US CFTC), announced his resignation, effective 20 January 2025, with his last day at the agency set for 7 February 2025. Over seven years at the US CFTC, Rostin Behnam oversaw developments in the derivatives markets, ensuring stability and fostering innovation.
- Rostin Behnam joined the US CFTC as a commissioner in 2017 and was later appointed Chairman, leading the agency through transformative changes in financial markets.
- Rostin Behnam focused on ensuring market stability, minimising disruptions, and creating clear regulatory guidelines to support financial stability and economic growth.
- He worked to update the US CFTC’s capabilities, to promote responsible innovation and engagement with new market entrants.
- Behnam’s leadership spanned for periods of domestic and international market volatility, filled with deliberate and consensus-driven actions to mitigate risks.
To read this news in detail click here
Singapore Addresses Credit Card Fraud: Protections and Responsibilities Outlined
On 7 January 2025, Deputy Prime Minister and MAS Chairman Mr Gan Kim Yong addressed credit card fraud in Parliament, responding to a query by MP Desmond Choo. Mr Gan provided recent fraud statistics, outlined existing protections, and discussed the appropriateness of frameworks like the Shared Responsibility Framework (SRF) for managing such incidents. He emphasised the shared responsibilities of banks and cardholders in combating fraud.
- Between 2021 and 2023, an average of 790 credit card fraud cases were reported annually, with yearly losses averaging SG$2.1 million.
- Existing safeguards include 3-D Secure (3DS) authentication, real-time transaction monitoring, and transitioning from SMS OTPs to secure push notifications through banking apps.
- Mr Gan stated that a framework similar to the SRF for electronic banking fraud is unnecessary, as protections already exist under the ABS Code of Practice for Banks – Credit Cards.
- Under the ABS Code, cardholder liability for unauthorised transactions is capped at SG$100, provided prompt reporting and no gross negligence occur.
- The chargeback mechanism under card schemes offers additional protection by shifting liability to merchants if they fail to enable secure transaction protocols like 3DS.
- The government continues to enhance protections by adopting secure authentication methods and urging consumers to safeguard their card details and report fraud promptly.
To read this news in detail click here
US SEC Updates Investment Company Names Rule with New FAQs, Retiring Obsolete Guidelines
On 7 January 2025, the US Securities and Exchange Commission (US SEC) issued updated FAQs for Rule 35d-1 under the Investment Company Act of 1940, addressing amendments made in 2023. The changes aim to prevent misleading fund names and reflect modern investment practices. Outdated guidance from 2001 was retired.
- The “names rule,” adopted in 2001, mandates funds with specific names to invest at least 80% of assets accordingly, ensuring alignment between fund names and investment strategies.
- The 2023 amendments expanded the rule to include names suggesting issuer characteristics, ESG themes, or specific credit qualities.
- New FAQs clarify the application of the 80% investment policy to terms like “high-yield” (corporate bonds below credit standards) and “tax-sensitive” (reflecting portfolio traits rather than specific investments).
- Outdated 2001 guidance on compliance timelines and naming conventions like “global” or “international” was retired, reflecting updated interpretations.
- Funds revising their 80% investment policies to comply with the amended rule are exempt from requiring shareholder approval unless deviating from existing fundamental policies.
- Tax-exempt funds must now adopt a fundamental policy to meet the 80% requirement, using either an asset or income test.
- These updates follow two years of consultation and revisions, to better align with evolving investment trends and protect investors.
To read this news in detail click here
RBI Announces HaRBInger 2024 Winners: Transforming Financial Security and Accessibility
On 7 January 2025, the Reserve Bank of India (RBI) announced the winners of its global hackathon, HaRBInger 2024 – Innovation for Transformation, highlighting innovative solutions for financial fraud prevention and accessibility for differently-abled individuals.
- The hackathon, launched on 7 June 2024, focused on ‘Zero Financial Frauds’ and ‘Being Divyang Friendly.’
- Key challenges included fraud detection, CBDC transaction anonymity, mule account identification, and currency recognition for visually impaired individuals.
- The event received 534 entries, including 39 from international teams, with 28 finalists developing prototypes over an eight-week period.
- FPL Technologies Pvt. Ltd. won for their real-time fraud detection solution, ‘OneRadar.’
- Xaults Technologies Pvt. Ltd. secured victory for CBDC anonymity through Stealth Addresses and Zero-Knowledge Proofs.
- Joint winners Epifi Technologies Pvt. Ltd. and NapID Cybersec Pvt. Ltd. addressed mule account detection with AI-based solutions.
- H Vision India Pvt. Ltd. and Rupya Darshini were recognised for currency identification tools for visually impaired individuals.
- VisAst, an all-women team, won for a wearable device providing voice-based currency identification.
- The competition fostered practical, scalable solutions with significant potential for adoption in the financial sector, subject to regulatory compliance.
To read this news in detail click here
