Financial Services Sector Calls for Clarity on AI and ESG Regulations

Despite recognizing the potential benefits of AI, many firms are relying on external suppliers rather than developing in-house expertise, which could hinder their future competitiveness.

A new survey by global law firm DLA Piper highlights significant challenges faced by the financial services (FS) sector regarding unclear regulations around Artificial Intelligence (AI) and Environmental, Social, and Governance (ESG) factors. Despite recognizing the potential benefits of AI, many firms are relying on external suppliers rather than developing in-house expertise, which could hinder their future competitiveness.

Key Findings from the Report:

Optimism for Growth: 80% of respondents express optimism about the industry's growth, particularly in the UK and US (93% and 90%, respectively). In contrast, confidence in Africa is more cautious at 50%.

Regulatory Challenges: 58% of participants cite regulatory complexity as a major global challenge, with 73% stating current regulations stifle innovation.

Desire for Clearer Regulations: A significant number of respondents (56%) want more ESG regulations to help them meet their sustainability goals, while 43% seek better understanding of existing regulations.

AI and Digitalization:

While 86% believe AI will transform the sector, 53% also see it as a major challenge. Only 39% are committed to hiring AI specialists or establishing governance structures for AI initiatives.

Over half (56%) of businesses are developing ethical frameworks for AI, essential for meeting stakeholder and customer expectations.

ESG Commitment:

Nearly half of the businesses aim to lead in sustainability and ESG, yet face challenges such as reputational risks and accurate reporting.

57% plan to develop new ESG-focused products, but only 17% prioritize staff training in this area.

Mark Dwyer, Global Co-Chair of DLA Piper's Financial Services sector group, emphasized the need for financial organizations to proactively plan for regulatory changes and resource allocation. Johannes Gouws, Country Managing Partner at DLA Piper South Africa, noted the importance of aligning regulations in African markets with international standards to maintain sector integrity.

As the financial services sector navigates the complexities of AI and ESG regulations, clear planning and resource development are essential to leverage the opportunities presented by technological advancements and sustainability initiatives.