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ARTIERI & ROHMER (Law Offices): Taking AI into account in

banking and financial regulations by Arthur Rohmer

In the Principality of Monaco as elsewhere, artificial intelligence (AI) is profoundly transforming
the banking and finance sector, generating both unprecedented challenges and opportunities.

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AI deployments, particularly in banking and for back or middle office functions.We also customers.In addition, specific regulations
finance, continue to raise complex legal and note that some banks prefer to experiment applicable in the Principality of Monaco, such
regulatory issues, made even more difficult with in-house versions of GenAI, limiting as certain articles of the French Monetary
by developments in business law. A wide the use of large public language models and Financial Code, or the recommendations
range of AI-related activities is already being (LLMs) such as OpenAI's ChatGPT, due to of the Autorité de Contrôle Prudentiel et
reported within banking and financial players, regulatory concerns over data and reliability de Résolution (ACPR) on outsourcing
with adaptation varying considerably from an of results. Indeed, regulators have already arrangements, impose detailed requirements
institution to another. had occasion to warn against the risk of large relating to the management of banks' systems
Today, AI is already supporting crucial internal models producing inconsistent, invented or and controls, including preparation for
functions such as anti-money laundering and "hallucinated" information with an assertive disruptions to AI systems.
know-your-customer (KYC) verification. Risk presentation likely to call into question their In this way, Monegasque applicable law already
management is also one of the first areas reliability. Around the world, regulators are includes tools to make management teams
of use. This includes tools for monitoring, actively working to understand the risks accountable in the event of non-compliance
detecting and managing various types of specific to AI and to develop guidelines to with regulatory obligations, encouraging them
risk, such as operational, market, credit or prevent potential damage. to better understand and manage AI-related
regulatory risks. Automating fraud detection in In the Principality of Monaco, despite the risks. Moreover, the risk-based approach of the
payment transactions is now common practice. absence of any specific local text regulating May 21, 2024 European regulation on artificial
But one of the most promising areas of AI or even referring to AI, there is no doubt that intelligence is largely inspired by the texts
is generative AI (GenAI), which is attracting current banking and financial regulations already applicable to banking and finance, with
the attention of banks keen to explore its are already likely to apply to the use of AI by an emphasis on transparency, accountability
applications while complying with current licensed entities. This is the case for all the and human supervision.
regulatory standards. rules of good conduct laid down by Sovereign For this reason, banks, with their risk
Indeed, GenAI, has the ability to perform tasks Order no. 1.284 of September 10, 2007, management and compliance processes
that traditional AI cannot - it can analyze implementing Law no. 1.338 of September 7, already in place, are very well placed to absorb
more types of data, process large datasets 2007 on financial activities. these new regulations. What remains, however,
faster and perform a wider range of tasks. It should be remembered, for example, is for banking and financial players to identify,
The use of GenAI in front office roles, such that entities which are duly licensed by on an ongoing basis, the gaps between their
as one-to-one marketing or providing advice, the Commission de Contrôle des Activités current governance processes and the ever-
remains exceptional and presents more Financières (CCAF) must behave loyally innovative practices that will result from the
regulatory risks than conventional use of AI and act fairly in the best interests of their use of GenAI.

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