FinTech Pulse

Get ready to explore the latest tech news for the Financial Services industry with my monthly newsletter! In this edition, we cover two key topics: how data centers are becoming more sustainable and how the new AI regulations will impact financial services both in the EU and globally.

In 2024, cloud computing is transforming IT capabilities for individuals, companies, and governments. While it offers significant benefits like efficiency and service quality, it also brings challenges, particularly its environmental impact.

Cloud computing provides online services such as storage, software, and databases, often through platforms like Amazon Web Services, Microsoft Azure, and Google Cloud Platform. These services are now critical for industries worldwide, with 94% of companies expected to use them by 2024. However, the growth of cloud computing is leading to a surge in energy consumption by data centers, raising environmental concerns due to the high energy and water demands, land use, and e-waste.

Efforts are underway to address these issues, including making data centers more sustainable:

• Considering climate resiliency in planning and operating data centers, including protecting critical infrastructure.
• Choosing locations with access to renewable energy and water, and positioning data centers in cooler climates to reduce cooling needs. Governments should consider water and energy resource competition in planning.
• Upgrading to energy-efficient equipment, using virtualization for server management, and monitoring equipment performance in real time.
• Shift to renewable energy sources to reduce data centers' climate footprint.
• Using energy-efficient cooling technologies and proper airflow management to optimize cooling and minimize hotspots.
• Managing e-waste through reuse, refurbishment, and recycling.

https://internationalbanker.com/technology/the-environmental-impact-of-cloud-computing-and-the-importance-of-greening-data-centres/

The EU Artificial Intelligence Act establishes rules for AI systems, effective August 1, 2024, with most obligations starting August 2, 2026. It affects both EU-based financial institutions and non-EU providers serving the EU market.

The AI Act applies to banks, insurers, brokers, investment managers, and advisers, as well as third-party service providers to these entities, regardless of their location. It also extends to non-EU entities that use or supply AI systems impacting the EU.

AI systems are categorized based on risk:

• Unacceptable Risk: Banned systems include those that create social scores leading to discrimination, misuse facial recognition, or employ deceptive practices. These bans take effect from February 1, 2025.
• High Risk: This includes AI systems used for evaluating creditworthiness, insurance risk, and recruitment. High-risk AI must undergo conformity assessments and meet strict documentation and transparency requirements.

The AI Act is directly applicable and integrates with existing EU financial laws. Financial services entities must adapt their governance and risk management practices to meet AI Act standards. High-risk AI providers must ensure their systems comply with EU standards before market launch.

Financial services should review their AI practices considering the AI Act and consult the European Commission’s guidance to prepare for implementation.

On August 12, the CFPB emphasized that innovation in financial services must not compromise consumer protection or fair competition. The agency is closely monitoring how AI and other technologies are used in areas like customer service, fraud detection, and lending.

CFPB General Counsel and Chief Technologist stressed that companies must comply with existing laws, and if they can't do so while using new technology, they shouldn't use it.

The CFPB is moving away from past efforts to encourage innovation through regulatory "sandboxes" and is now focused on ensuring a level playing field for all market participants. The agency is also taking steps to evaluate the use of AI in lending decisions to prevent discrimination and monitor the expansion of tech companies into financial services.

As AI continues to evolve in the financial sector, the CFPB's stance indicates that all innovation must adhere to current consumer protection laws, with no special exceptions.

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• Increase Acquisition by Optimizing Origination and Onboarding Flows
• Focus on Data Foundations to Successfully Deploy Gen AI

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Thank you for your readership and subscription. I hope that you found the material both informative and engaging. If you have any questions or wish to provide feedback, please feel free to reach out. Your input is highly valued, and I look forward to your thoughts.

Until next time!

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