Whether detecting fraud faster or providing highly personalised banking for customers, the pace of change AI is bringing to the financial services sector is unprecedented.
The opportunities are significant, but the regulatory environment is also shifting fast as policymakers try and keep up with developments.
Catherine MacPherson, Edinburgh-based managing associate in TLT’s financial services regulatory team, says the rapid transformation is posing challenges.
“AI is reshaping operations, and a raft of new measures aimed at tackling money laundering and financial crime are set to change how UK businesses engage with the EU,” she points out.
The evolution of digital assets into a feature on the mainstream investment landscape is also leading to significant changes for lawyers working in the sector.
In Scotland, the introduction of the Digital Assets (Scotland) Bill could provide a significant boost to Scotland’s burgeoning fintech sector, according to Angus MacLeod, partner at Wright, Johnston & Mackenzie. The legislation looks to provide long-awaited legal clarity on the status under Scots law of digital assets such as cryptocurrencies, non-fungible tokens (NFTs), and other blockchain-based instruments.
“Until now, digital assets existed in a legal grey area, creating uncertainty for investors, entrepreneurs and legal professionals.
“The bill changes that by confirming that certain digital assets can be treated as property and can be owned, transferred, and protected like physical items,” explains MacLeod.
“For businesses and investors, it creates a more secure and predictable environment for innovation and growth. It reduces risk, enhances investor confidence, and opens the door to new commercial models in digital finance, asset management, and technology.”
Growing regulation around anti-money laundering (AML) continues to be significant issue for the sector, and also an increasing source of revenue for legal firms.
Analysis by the Law Society of Scotland shows practices in Scotland reported almost £819m in fees last year from work around AML regulations, a 16.9 per cent increase on 2023.
Amid burgeoning regulation in the sector, Thomas Morrison, legal director at Shoosmiths in Edinburgh, argues that how financial services businesses communicate with their customers will increasingly be in the spotlight.
A survey the firm commissioned with YouGov recently highlighted a “yawning gap” between information that complies with legal rules and regulations, and information that consumers actually understand.
“Consumers are increasingly embracing digital information and attention spans are shortening as we become a nation of digital multi-taskers,” he points out.
Morrison says as more complex financial products – such as crypto assets – become available, ensuring consumers are properly informed about benefits and risks has never been more important.
He says it is an area where AI could play a significant role in helping provide focused, digestible information that consumers can quickly understand.
Financial services firms in Scotland are also bracing themselves for the introduction in January of the enforcement phase of DORA, the Digital Operational Resilience Act, an EU regulation that requires financial institutions to better manage and withstand technology-related risks to ensure business continuity.
UK firms must comply with DORA if they provide financial services or critical ICT services to clients or entities operating within the EU.
The legislation requires firms to test that their resilience mechanisms are effective to prevent operational disruptions.
Scott Moncur, head of financial services at Edinburgh-based lawyers Vialex, told a round table of Scottish leaders in the sector that the legislation represents a seismic shift in how the sector approaches security.
He says it not only demands compliance but also a rethinking of how systems, people, and suppliers interact to ensure a joined-up approach to security, resilience and compliance.
