LUXEMBOURG Trends and Developments Contributed by: Baptiste Aubry, Carole Schmidt and Adam Obadia, A&O Shearman
Managing and identifying the risks associated with the use of AI and machine learning (ML) In late 2021, the CSSF and the BCL launched a survey to better assess how certain innovative technologies have been adopted by actors of the Luxembourg financial sector. The main find - ings of this survey were published in a report “Thematic review on the use of Artificial Intel - ligence in the Luxembourg Financial sector” issued in May 2023. While the survey evidenced that the adoption of AI was at an early stage in the Luxembourg financial sector, the CSSF and the BCL expected an increased use of AI and ML in the short term. Therefore, although acknowledging the benefits of these new technologies (among others, and as already stated above, for AML/CTF compli - ance), they already anticipated that new chal - lenges and risks would have to be addressed by regulators. Interestingly, some of these risks were already specifically identified in the preface of the regulator’s annual report for 2023: “data quality risks, the risk of bias, misinformation, hallucination, operational and cyber risks, mar - ket manipulation risks (including through social media), and threats to data protection”. However, pending formal adoption of the pro - posal for an EU Artificial Intelligence Act, the CSSF has decided not to issue any new local guidance and invited supervised entities to con - tinue referring to the recommendations included in its white paper of 21 December 2018 “Artifi - cial Intelligence: Opportunities, risks and recom - mendations for the financial sector”. The CSSF nonetheless stressed that it would continue monitoring developments in this field, which it did through meetings with selected entities over the course of 2023 and the launch of a new sur- vey regarding the usage of artificial intelligence on 19 June 2024. While the results of this new
survey are not yet public, the CSSF has already announced that it will start defining its supervi - sory approach in this field from 2024 now that Regulation (EU) 2024/1689 laying down harmo - nised rules on artificial intelligence has been adopted and particular attention will be paid to generative AI. Further guidance can therefore be expected from the CSSF in this field. And the regulator has already given an indication of what could be its key points of attention by stating that “governance, human oversight and explain - ability” should be ensured by supervised entities relying upon AI solutions. Monitoring the implementation of the new EU framework for crypto-assets Under the current Luxembourg legal frame - work, virtual asset service providers are subject to a registration regime under the amended act of 12 November 2004 on the combat against money laundering and terrorist financing. On 17 August 2023, the CSSF published a series of FAQs specifying the key features of this national registration regime. This regime will evolve since an EU-harmo - nised regime for crypto-assets has now been enacted at EU level pursuant to Regulation (EU) 2023/1114 on markets in crypto-assets, the so- called MiCAR. While a phased approach has been adopted under MiCAR regarding the appli - cation of the new authorisation and regulatory supervision framework for crypto-asset issuers and crypto-asset service providers, the CSSF has adopted a proactive approach by regularly publishing communications from July 2023 to ensure that actors of the financial sector willing to engage in crypto-assets activities are aware of their new obligations under MiCAR and do not miss the relevant timelines. As the remain - ing provisions of MiCAR become applicable from 30 December 2024 and with a draft bill of
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