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EU Commission: Possibility of regulating the use of compliance tech by EU banks and public sector

It has been disclosed that the European Commission is investigating whether technology solutions used by banks, fintech companies, and the public sector in the EU should be regulated.

Alexandra Jour-Schroer, one of Europe's top finance officials, stated that the Brussels Commission is examining the idea of direct regulation.

Ms. Jour-Schroeder is the Deputy Director General of DG FISMA, the Commission's directorate for financial services and capital markets.

She stated that a "difficult question" being investigated by the Commission is whether the myriad technical solutions utilized by industry or public entities for compliance require any sort of direct regulation.

At the AML Intelligence 'Women in FinCrime' Summit, where hundreds of AFC and Compliance experts from around the world were present, the Deputy DG delivered a speech.

"What we do observe is there is no one-size-fits-all. Some large sophisticated obliged entities are developing in-house solutions. Smaller players buy off-the-shelf products. The market of third-party solution providers is blooming."

"We hear positive stories from the industry about the potential or already proven efficiency and effectiveness gains in compliance efforts," she said.

Yet, despite the enthusiasm, there were "reservations on the part of the public authorities."

"We see legal disputes between obliged entities and supervisors related to the use of AI-based solutions in AML compliance," she noted.

"From our perspective as a regulator, the objective is to remain technologically neutral. Promoting or restricting any form of solutions or how they are used by any actors would impact and disrupt competition on the market of technological solutions."  Ms. Jour-Schroeder added, "We would leave it up to the industry to make a proper assessment when developing their own technological solutions or choosing their service providers."

"The same applies to public authorities we do not want to restrict authorities we do not want to drag into specific technological solutions."

"Following the logic of technological neutrality, the future Union AML Authority (AMLA) will likewise not have any specific role or powers of approval of any specific industry or supervisory technological solution," she explained.

Ms. Jour Schoeder stated that AMLA would need to stay up with the times and ensure that it can utilize new technologies and methods.

Some essential tools, such as the database AMLA will host, can only be effective if the IT solutions are advanced, quick, and secure.

"In addition, in its capacity as a direct supervisor, AMLA should have proper understanding and capacity to evaluate whether the solutions used for compliance purposes by supervised entities are appropriate for the purposes of their risk management," she stated.

AMLA would also be required to investigate the use of machine learning or artificial intelligence-based solutions in some future aspect of its operations.

Yet, "it is possibly a little bit too early" to determine how AMLA would utilize AI at this time.

The Deputy DG told delegates, "When implemented using a responsible and risk-based approach, new technologies and innovative products and services can also improve financial inclusion, bringing more people into the regulated financial system and thereby reinforcing the effectiveness of AML/CFT measures."

"In its AML package the Commission has included a set of rules and principles to create responsible innovation to enhance AML/CFT effectiveness while at the same time ensuring privacy and Data Protection."

Ms. Jour-Schroeder stated, "We are facing a joint objective: to have a toolkit that effectively reflect threats as well as creating opportunities in our ongoing efforts to fight financial crime."

Ms. Jour-Schroeder stated that "An important change we have considered in the AML legislative package is digital identity solutions."

Digital IDs provide EU members with significant opportunities - "not only in their interaction with the state and public authorities, but also in their daily life and economic participation."

She noted that AML/CFT regulations had to be modified to accommodate the usage of eID. "This should not be considered as suboptimal or less secure than face-to-face interactions with obliged entities. This principle is now black on white in our proposal."


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