We asked our Head of Dealing on Own Account – Kyriakos Petallides, to take a moment to discuss the recent regulatory changes, as well as briefly talk about other developments that he believes have an impact on our industry. The topics of AI influence and projections for the upcoming months were also discussed. Enjoy reading!
AI and ChatGPT
Innovation is a natural occurrence in the FinTech world, but the arrival of OpenAI’s GPT-4, an advanced language model, is set to impact the industry like never before. With greater natural language processing (NLP) capabilities than its predecessor, GPT-3, GPT-4 is expected to boost efficiency and productivity in financial services, revolutionizing the way businesses operate, interact with customers, and utilize data. GPT-4’s impressive feat lies in its ability to generate human-like text with exceptional accuracy.
AI can help financial firms in various ways, such as improving customer service, reducing costs, and providing more accurate insights for investment decisions. Also, AI can help with fraud detection, risk management, and regulatory compliance. Thanks to its extensive training on various text sources, GPT-4 can engage in nuanced conversations, answer questions, generate content, and even write code.
However, there are some ethical implications of using AI in financial services, such as bias and lack of transparency. While AI has the potential to transform the financial services industry, it must be used responsibly and ethically to ensure its benefits are realized.
Regulatory Changes and Compliance
The Financial Services Authority of St. Vincent and the Grenadines (SVG) has issued a warning and requirements for registered forex entities, giving them until March 10th, 2023, to provide evidence of their approved license from other jurisdictions where they conduct business. Failure to comply may result in sanctions.
CySEC – Russia Sanctions
CySEC, the regulatory authority in Cyprus, issued Circular C551 to inform regulated entities of the Tenth Sanctions Package adopted by the EU Council against Russia. The circular highlights the new reporting obligations on frozen funds and economic resources of listed individuals and entities and immobilized reserves and assets of the Central Bank of Russia, as outlined in the amended Article 8 of Council Regulation (EU) No. 269/2014 and Article 5a of Council Regulation (EU) No. 833/2014.
Denial of Service Attacks
Recently DDoS attacks on forex brokers have surged, with Cyprus being heavily targeted. These attacks aim to disrupt services and overload a broker’s server with traffic, causing their website or trading platform to become unavailable. Experts suggest that forex brokers invest in DDoS protection services to mitigate the impact of these attacks. They also recommend educating employees on cybersecurity best practices and regularly testing their systems’ resilience to such attacks.
On 1 February 2023, ESMA published its TRV Risk Analysis Report on ‘Artificial intelligence in EU securities markets’ (the ‘Report’). In its Report, ESMA warns that a widespread use of artificial intelligence (AI) comes with risks. In particular, increased uptake may lead to the concentration of systems and models among a few ‘big players’. These circumstances warrant further attention and monitoring to continue ensuring that AI developments and the related potential risks are well understood and taken into account.
FATF updated the country list
On the 24th of February, the Financial Action Task Force (FATF), a global organization that sets standards for combating money laundering and terrorist financing, announced the suspension of Russia from its membership. This decision was made due to Russia’s failure to comply with the FATF’s requirements, which include developing and implementing effective measures to combat money laundering and terrorist financing. The suspension means that Russian banks and financial institutions will face additional scrutiny and could have difficulty accessing international banking services. In addition, FATF has also added South Africa and Nigeria to its “gray list,” a move that can be devastating to a nation’s economy.
Projections for the upcoming months
Looking ahead, bank stocks are currently at low valuations and the Q1 earnings season may address some concerns surrounding the banking system. The estimated Q1 2023 earnings decline for the S&P 500 is -6.6%, which is the largest decline since Q2 2020. The US banking system is currently under stress, and the conversation is shifting to when and how fast the Federal Reserve will begin cutting rates. The Fed’s most recent summary of economic projections sees rates elevated around 5% through the end of 2023. How markets will react to the upcoming rate-cut cycle will largely depend upon the context driving it.
A weaker dollar is expected to make gold even more attractive. Bitcoin has gained over 70% since the beginning of the year and has significant upside potential once it breaks the psychological $30,000 barrier. Oil prices are likely to remain high in Q2 due to production cuts, but the situation in Russia-Ukraine could have a significant impact on oil prices and energy stocks.