Client News Notice: Summary of CFTC Staff Advisory on Artificial Intelligence in Regulated Markets - 06 December 2024

The U.S. Commodity Futures Trading Commission (CFTC) has issued Staff Advisory No. 24-17, addressing the integration of Artificial Intelligence (AI) within CFTC-regulated markets. This comprehensive advisory underscores the transformative potential of AI while emphasizing the importance of compliance with the Commodity Exchange Act (CEA) and CFTC regulations.

Key Highlights:

1. AI’s Expanding Role in Derivatives Markets: The advisory recognizes AI’s growing influence across the derivatives trade lifecycle, including order processing, trade matching, market surveillance, risk assessment, and compliance. Potential applications include predictive analytics, real-time anomaly detection, and automated recordkeeping.
2. Compliance Obligations: CFTC-regulated entities, including Designated Contract Markets (DCMs), Swap Execution Facilities (SEFs), Derivatives Clearing Organizations (DCOs), and Futures Commission Merchants (FCMs), must ensure AI implementations adhere to existing statutory and regulatory frameworks. This includes maintaining system safeguards, managing risks, and ensuring accurate disclosures.
3. Guidance on System Changes: The advisory stresses the importance of reviewing and updating policies, procedures, and controls when deploying AI technologies. It also highlights the necessity of timely advance notice to CFTC Staff regarding significant system changes that may impact reliability, security, or scalability.
4. Ongoing Monitoring and Dialogue: The CFTC commits to ongoing oversight and collaboration with market participants. The Staff Advisory anticipates further guidance or regulatory adjustments as AI technology evolves.

This advisory reflects the CFTC’s proactive approach to balancing innovation and regulatory integrity in financial markets. CFTC-regulated entities are encouraged to engage with the Commission on AI-related developments and risk management practices. For further details, the full advisory is available here.

This notice serves to keep stakeholders informed of regulatory expectations and the critical role of compliance in leveraging AI responsibly within the financial ecosystem.