European watchdogs prepare direct oversight of AI and tokenization in retail finance

The European Securities and Markets Authority (ESMA) said it would make AI, tokenization and other emerging technologies relevant to finance a new supervisory priority from 2027.

“Firms are increasingly using AI and tokenized products in day-to-day financial services to gain market share,” the financial watchdog said in a report released Wednesday, explaining why it is focusing on these two areas initially. “Technological innovation brings benefits but also risks,” it added.

Under its new supervisory program, the ESMA and national regulators across the European Union will examine how regulated firms use artificial intelligence and tokenized products in their core activities, rather than only in back-office operations.

The initiative, called “Innovation with investor safeguards,” will focus on building regulators’ ability to supervise new technology and ensuring firms have proper governance, reliable data and client-aligned outcomes.

The European Central Bank (ECB) has also recently announced several moves in the tokenization and stablecoin sectors of cryptocurrency. Earlier this week, the ECB said it plans to invest a small portion of its reserves in tokenized securities, giving it direct exposure to blockchain-based financial markets. T