AI in capital markets: Navigating legal and regulatory considerations

Mike Pierides, James Mulligan and Christopher Archer
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Mike Pierides: Partner, Morgan, Lewis & Bockius, UK
James Mulligan: Associate, Morgan, Lewis & Bockius, USA
Christopher Archer: Associate, Morgan, Lewis & Bockius, USA

Journal of Securities Operations & Custody, 2022, vol. 14, issue 4, 299-313

Abstract: In capital markets, digitisation and cloud technology have catalysed opportunities for AI by enabling firms to collect, store and analyse larger datasets from a variety of internal sources than ever before. The past year brought greater regulatory activity around AI in the UK, EU and US than in any prior year, although regulatory regimes remain disparate. When considering legal issues that arise from use of AI, facets of multiple legal fields are relevant, albeit differing between jurisdictions, such as intellectual property rights frameworks and contractual areas such as data ownership, data rights, risk and liability allocation and compliance responsibilities. In this paper, the key legal considerations and recent regulatory developments are categorised into four actionable, international themes: (i) due diligence of data as an asset; (ii) effective organisational ongoing controls; (iii) intellectual property management; and (iv) third party contract and risk management. With so much in flux, we find that the best approach for now is to consider such themes and ensure robust governance, transparency and explainability of each of the AI systems, human oversight of the AI and contractual arrangements with third party providers. Perhaps ironically, ‘getting AI right’ is currently, to a large extent, more an art of human judgement than any formulaic compliance with rules.

Keywords: artificial intelligence; machine learning; digitisation; financial regulation; legislation; intellectual property (search for similar items in EconPapers)
JEL-codes: E5 G2 K22 (search for similar items in EconPapers)
Date: 2022
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