Legal risks of using regulatory technologies in business and professional activities

Abstract

When using artificial intelligence technology in RegTech or SupTech solutions to prevent, detect and control financial crimes such as money laundering, it is necessary to be aware that due to compliance costs, many online financial firms are prohibited from providing financial advice, especially if they process transactions on behalf of clients or provide p2p investment platforms. RegTech streamlines KYC/CDD processes and therefore has the ability to reduce compliance costs. This, in turn, will allow more firms to enter the market to offer services. The regulatory goal of ensuring market integrity directly conflicts with the rights of individuals and the Data Protection Acts. It is argued that data governance will need to be established to protect individual rights and public safety. Furthermore, the question remains unresolved as to whether fiduciary duties can be assumed by robo-advisors or consultants using algorithms. Fiduciary duties may also be modified and limited by the parties. The fiduciary duty concerns what the fiduciary (investment adviser) cannot do (conflict of interest) but should not do (act in the best interest of the client). Consequently, the use of common law principles to protect consumer investors is currently underdeveloped, particularly if the AI seeks to provide access to finance and fill gaps in guidance.