ESMA prioritizes AI and tokenization oversight from 2027

ESMA will make AI and tokenization the initial focus of a new supervisory priority on digital innovation starting in 2027. EU supervisors will identify where tokenization is emerging. They will document how firms use or plan to use AI and tokenization in products and processes that directly affect investors. They will conduct initial checks on a subset of the most affected firms. ESMA said Wednesday that the priority will help supervisors build expertise. The priority will also support common oversight approaches as firms increasingly use AI and tokenized products in financial services. The initiative is a Union Strategic Supervisory Priority, known as a USSP. ESMA uses USSPs to coordinate national regulators' work on risks requiring attention across the European Union. The initiative will monitor biased or misleading AI outputs. It will also monitor products that investors may struggle to understand. Reliance on a limited number of third-party providers is another risk identified in the factsheet. ESMA identifies up to two priorities every three years. The priorities must be relevant across the European Union. They must also reflect emerging developments and trends. Supervisors plan to examine what firms tell investors about emerging technologies. Supervisors also plan to share examples of innovations that have improved investor outcomes. The examples will include innovations that reduce bias and ensure reliable results. The new priority will run alongside an existing USSP on cyber and operational resilience. That priority launched in 2025. ESMA is closing a separate priority on environmental, social and governance disclosures this year.