WEBVTT - ESMA Chair Talks AI Cyber Security Risks

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Varnera's Chair of the

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<v Speaker 1>European Securities and Markets Authority, thank you very much for

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<v Speaker 1>speaking to us. First of all, I want to talk

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<v Speaker 1>about some of the big issues that are happening at

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<v Speaker 1>the moment in financial markets. We had these comments yesterday

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<v Speaker 1>from Vadstan Brovskis talking about the EU being in toxanthropic

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<v Speaker 1>to get access to mythos. This is something it's been

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<v Speaker 1>a big concern for big banks and lenders in the US.

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<v Speaker 1>Can you bring us up to data where ESMA is

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<v Speaker 1>in this process and what concerns you might have about

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<v Speaker 1>this technology given all of the talk around us.

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<v Speaker 2>From an ESMA perspective, we are very much monitoring and

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<v Speaker 2>looking at the developments. AI is speeding up some of

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<v Speaker 2>the cyber environment significantly, and that means that we need

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<v Speaker 2>to be conscious that financial entities are also stepping up

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<v Speaker 2>their cyber protections in this environment, and so ASTHMA, as

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<v Speaker 2>a financial regulator under the Digital Operational Resilience Act, clearly

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<v Speaker 2>working with the national authorities and with our sister authorities

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<v Speaker 2>on banking and insurance to make sure that we watch

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<v Speaker 2>very carefully how these new AI developments are changing the

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<v Speaker 2>cyber landscape what financial entities need to do to in

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<v Speaker 2>a much speedier way be able to patch and protect themselves,

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<v Speaker 2>and so that is one key focus point for us

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<v Speaker 2>to share that experience to work together. At the same time,

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<v Speaker 2>we are also together with our EU sister authorities, the

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<v Speaker 2>oversight body for certain critical third party providers that are

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<v Speaker 2>providing critical third party services to EU entities, and so

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<v Speaker 2>we are also through that lens talking directly to them

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<v Speaker 2>and trying to understand how they themselves are helping financial

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<v Speaker 2>entities in the EU.

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<v Speaker 1>And do you get the impression that these companies that

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<v Speaker 1>are operating in the financial services space are prepared for

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<v Speaker 1>the potential risks from this technology.

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<v Speaker 2>Financial services entities have always, over the last few years

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<v Speaker 2>been a key target for some of the cyber attacks

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<v Speaker 2>and scams and so on. So this is something which

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<v Speaker 2>I think a lot of entities have focused on. But

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<v Speaker 2>what the recent AI developments are clearly bringing is a

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<v Speaker 2>speed of new possibilities that is accelerating massively and that

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<v Speaker 2>is presenting a risk which I think many of them

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<v Speaker 2>still have to adapt to.

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<v Speaker 1>I want to turn some of the upcoming regulatory changes

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<v Speaker 1>that are being discussed as well as part of the

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<v Speaker 1>reason that has you in Brussels. The Market Integration and

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<v Speaker 1>Supervision Package part of the drive towards Capital Markets Union

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<v Speaker 1>now known as Savings and Investments Union. There's a debate

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<v Speaker 1>over a lot of these changes that's happening among European

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<v Speaker 1>countries as well. What is your sense of where that

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<v Speaker 1>debate is and how advanced the conversations are being had

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<v Speaker 1>and moving to wards these big changes for your organization

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<v Speaker 1>and other regulators as well.

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<v Speaker 2>The Commission put forward a very complete and ambitious proposal

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<v Speaker 2>at the end of last year, and now it is

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<v Speaker 2>down to the co legislators in the Parliament and in

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<v Speaker 2>the Council to actually look at those proposals and decide

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<v Speaker 2>what they believe should go into an ultimate package on

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<v Speaker 2>market integration and supervision. That is the debate that is

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<v Speaker 2>currently going on. My impression is that there is a

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<v Speaker 2>strong support for making a real step change in this

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<v Speaker 2>area to creating more integrated capital markets that are basically

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<v Speaker 2>less fragmented, reducing some of the complexity and potential for

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<v Speaker 2>divergent outcomes, interlinking market infrastructure, and in creating a more

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<v Speaker 2>innovative environment where also market infrastructure and new types of

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<v Speaker 2>technology can be used and can actually I hope Europe

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<v Speaker 2>to create more efficient, more interlinked liquidity pools and more

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<v Speaker 2>effective supervisory regime.

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<v Speaker 1>Do you feel there's more impetus now towards that change,

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<v Speaker 1>because this is in a very long process and we've

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<v Speaker 1>heard for a long time from the Draggy Report and

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<v Speaker 1>others that Capital Markets Union is needed to improve Europe's

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<v Speaker 1>economic outcomes. Do you think that things are moving faster

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<v Speaker 1>now than they have been before.

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<v Speaker 2>I think if I look over the last year, I

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<v Speaker 2>can certainly see an acceleration and a step up in admission.

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<v Speaker 2>In particular, if you look at the demands for making

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<v Speaker 2>sure that the capital markets can support some of the

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<v Speaker 2>funding needs that Europe has given more fiscal constraints, giving

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<v Speaker 2>the wish to also have more diversified funding sources beyond

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<v Speaker 2>the traditional lending from the banking sector. Member states and

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<v Speaker 2>members of the European Parliament are clearly looking at how

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<v Speaker 2>can we make a real step change here, and that

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<v Speaker 2>is partly through policy changes at the EU level, but

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<v Speaker 2>also partly by member states looking at their own pension systems.

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<v Speaker 2>Incentives for investors to engage in capital markets, financial literacy

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<v Speaker 2>and areas such as that. So there's a really complex

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<v Speaker 2>package of measures that needs to be considered to make

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<v Speaker 2>a step change, and clearly market integration and supervision package

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<v Speaker 2>is one part of that broader picture.

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<v Speaker 1>Do you think part of the change or the acceleration

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<v Speaker 1>of that effort is coming from the impetus from the

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<v Speaker 1>White House and the degrading relationship with the United States.

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<v Speaker 2>The key driver is that we need stronger European capital

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<v Speaker 2>markets and that is really something where we still have

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<v Speaker 2>too many barriers within the Single Market that currently are

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<v Speaker 2>holding back European companies from being able to raise and

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<v Speaker 2>scale themselves with European investors' money. There are issues about

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<v Speaker 2>investors being able to really benefit from the capital markets

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<v Speaker 2>in the EU, and so there's a whole set of

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<v Speaker 2>different incentives and drivers that are really pushing us ahead

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<v Speaker 2>to try to say we need to make a difference here.

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<v Speaker 2>Europe remains part of a global financial system, that is clear,

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<v Speaker 2>but at the same time, we need to have a

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<v Speaker 2>capital market system in the EU that is able to

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<v Speaker 2>provide the funding opportunities for companies and the investment opportunities

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<v Speaker 2>for citizens.