Due to the potential for transformation in our economies and for the development of products and services for investors, a relevant part of the study and consultation work carried out at "CMVM inov" will be structured in 3 areas: (i) Distributed Ledger Technologies (DLT), blockchain and crypto-assets; (ii) Artificial Intelligence (AI) and Big Data; (iii) ESG Innovation.  

Over time, the CMVM will promote connection, reflection, and consultation initiatives [link] that can contribute to the development of innovation in Portugal and mitigate risks for investors and the market.

ESG Innovation

DLT and Blockchain 

Distributed Ledger Technologies (DLT) whereof blockchain is highlighted, are likely to lead to an important advancement for accessing, exchanging, validating, and sharing information or assets, via digital networks. Its development can become an essential component for capital markets, potentially redesigning the functioning of companies and various market operators and enhancing the simplification of procedures and operational efficiency. 

The impacts of these technologies also encompass the development of crypto-assets, which are digital representations of value or rights that can be transferred and stored electronically. The significant increase in the crypto-assets market has been accompanied by an increasing number of projects related to its issuance and marketing. 

This is a largely an unregulated reality, except for products that lead to financial instruments. European legislative initiatives are underway that aim to frame it within the EU. In 2023, the proposal for a pilot regime for the application of distributed ledger technologies in market structures (DLT Pilot Regime) and a proposal for regulation on the crypto-asset market (MiCA) is expected to come into force in 2025. 

An increasingly financial system ("Decentralised Finance" or DeFi) has also emerged. It is decentralised, digitised, and operationalised through protocols and contracts transacted on private and public networks (often called smart contracts) that will continue to defy existing regulation. 

In this setting of regulatory uncertainty, the CMVM will work within the context of national and European rules, to support innovators in clarifying and developing projects that contribute to a better functioning of the economy and the products available to investors.

AI and Big Data 

Artificial Intelligence (AI) applications enabled by the availability of large amounts of data, automate or reproduce activities that were traditionally done by humans, often with reliability and speed gains. The potential for improvement that these technologies can bring to products and services offered to investors, and also in terms of the gains in efficiency and effectiveness for companies is significant. 

Among the different types of AI that impact the financial sector, the following stand out: (i) "Machine Learning", wherein algorithms 'learn' from new information and interactions to offer personalised results and recommendations based on the investor profile; and (ii) "Natural Language Processing" which seeks to make machines understand human language. 

Out of the potential advantages of this type of solution for investors, we highlight the ability to develop cheaper products that are customised to individual preferences, as well as improved experiences of investor relations with companies (through information segmentation or robot service). For companies, AI could allow, for example, reduce operational and management costs, optimise risk control, and innovate the development of products and services. 

Together with the potential benefits, there are also risks associated with use of AI. Here we highlight the risks of decisions based on poor quality information, the risks arising from lack of transparency or manipulation of information and the risks of cybersecurity. 

In this context, with the aim of enhancing the opportunities provided by artificial intelligence and addressing the inherent risks, the European Commission prepared a initial standard-setting instrument, the Proposal for a Regulation of the European Parliament and of the Council laying down harmonised rules on Artificial Intelligence, submitted on 21 April 2021. 

This is a proposal for a European regulation that sets out obligations for suppliers, users and other subjects that interact with artificial intelligence systems, using, for this purpose, a proportional approach based on risk, aimed at offering European citizens the confidence needed to use solutions based on artificial intelligence and, at the same time, encourage companies to develop them. 

Through the CMVM inov, we aim to promote privileged contact with innovative projects, reflecting on the use of AI and Big Data in the capital market and encouraging its responsible use by financial intermediaries, market structures, asset managers, issuers, auditors or RegTech and SupTech companies. In this context, the CMVM launched a reflection and consultation document on the potential impacts and applications of AI in the financial sector, particularly in the capital markets (more information available here).

ESG Innovation

ESG Innovation encompasses financial products and services that are innovative and technological (FinTech) and that explicitly incorporate sustainable elements, that is, environmental, social and/or corporate governance (ESG) elements, in their characteristics. 

In fact, the use of emerging technologies (such as artificial intelligence, big data, blockchain or the internet of things) may help to mitigate the risks of externalities (negative impacts) on the environment, society, and governance, caused by unsustainable financial products and services. 

The CMVM seeks to encourage the development of innovative projects that incorporate sustainable elements into financial products and services and that contribute to improved investor protection, more sustainable innovation and the development of the capital market and the real economy.  

There are several European regulatory novelties in this area that affect or will affect entities participating in the Portuguese and European capital markets. 

In March 2021, the Sustainable Finance Disclosures Regulation (SFDR) came into force, requiring financial institutions to classify the products they offer in the EU according to three types: products with sustainable objectives (Article 9), products that promote environmental and social activities (Article 8) and unsustainable products (Article 6). 

In 2022, the following legislative acts concerning ESG considerations are expected to come into force: Delegated Regulation (EU) 2021/1253 and Delegated Directive (EU) 2021/1269 (delegated acts of the Markets in Financial Instruments Directive) and the Delegated Directive (EU) 2021/1270 (Delegated Act of the Investment Fund Managers Directive).