EU passes landmark AI law, FinCEN reminds broker-dealers of CDD requirements, & HKMA launches phase two of e-HKD pilot program

The European Parliament has passed the Artificial Intelligence (AI) Act , which prohibits certain AI applications, including cognitive behavioral manipulation, social scoring, and the use of biometric identification by law enforcement, unless a specific exemption is granted. With a focus on fostering trustworthy AI while reducing administrative burdens for businesses, the legislation aims to address specific challenges posed by AI systems.?

What impact will this have on the financial services sector? Check out what my colleague, Alia Mahmud, has to say, including the need for clear documentation of processes and human oversight.

On March 15, the Financial Crimes Enforcement Network (FinCEN) published an administrative ruling regarding customer identification programs (CIPs) and customer due diligence (CDD) requirements for designated beneficiaries of individual retirement accounts (IRAs). In the letter, FinCEN reminds broker-dealers of their obligations to collect customer information under CIP and CDD rules, even when opening a new account for a beneficiary that has inherited IRA funds as part of a charitable estate. This includes writing a CIP that comprises risk-based policies and procedures, enabling broker-dealers to form a reasonable belief about the true identity of each customer.

The Hong Kong Monetary Authority (HKMA) has launched phase two of the e-HKD Pilot Program to explore innovative use cases for the e-HKD in Hong Kong. Phase one studied domestic retail use cases in programmable payments, settlement of tokenized assets, and offline payments. Phase two will delve deeper into select pilots from phase one and explore new use cases. The HKMA will continue to research the e-HKD as it explores the roles central bank digital currencies (CBDCs) could play in a future digital money landscape. Firms interested in participating in phase two of the program should submit their applications by May 17, 2024.

Until next week,

Andrew Davies, Global Head of Regulatory Affairs.

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