SKN | ESMA to Prioritize AI and Tokenization Supervision Across EU Financial Markets in 2027

Key Points:

• ESMA will make artificial intelligence and tokenization the initial focus of a new EU-wide supervisory priority on digital innovation beginning in 2027.
• National regulators will map how firms use the technologies in investor-facing products and processes and conduct initial reviews of a subset of affected firms.
• ESMA will focus on risks including misleading AI outputs, products that investors may struggle to understand and dependence on a small number of third-party technology providers. ESMA

The European Securities and Markets Authority is preparing a coordinated EU-wide supervisory push on artificial intelligence and tokenization, reflecting the growing role of both technologies across financial markets.

Beginning in 2027, ESMA and national competent authorities will establish a new Union Strategic Supervisory Priority focused on digital innovation. The initial work will examine how supervised financial firms use AI and tokenization in products and processes that directly affect investors. ESMA

The initiative is designed to build supervisory expertise, improve coordination between national regulators and develop more consistent approaches as financial institutions increasingly incorporate emerging technologies into their operations.

AI and Tokenization Move to the Center of Supervisory Work

ESMA’s new priority will initially concentrate on two areas: artificial intelligence and tokenization.

National regulators will identify where tokenization is emerging across their markets and document how firms are using, or planning to use, AI and tokenized products in investor-facing activities. Supervisors will then conduct initial checks on a risk-based subset of the firms most affected.

The approach gives regulators room to adapt as technology develops. ESMA said the priority will remain flexible enough to address other technological developments that emerge during the supervisory cycle. ESMA

Tokenization has become an increasingly visible part of European financial-market development. ESMA’s September risk assessment said equity tokenization remains at an early stage, but adoption momentum is increasing. ESMA

Regulators Focus on Investor Protection

The supervisory initiative is not intended solely to monitor technology adoption. ESMA is also focusing on how emerging technologies can affect investors and the reliability of financial products and services.

Its framework identifies risks including biased or misleading AI outputs, financial products that investors may find difficult to understand and reliance on a limited number of external technology providers.

Supervisors will also examine how firms communicate with investors about their use of emerging technologies. ESMA plans to share examples of applications that improve investor outcomes, reduce bias and produce reliable results. ESMA

The emphasis reflects a broader shift toward risk-based oversight as AI becomes embedded in financial decision-making, customer services, risk management and other market activities.

Frontier AI Adds a New Layer of Risk

The new priority will operate alongside ESMA’s existing Union Strategic Supervisory Priority on cyber and operational resilience, which began in 2025.

That overlap is increasingly relevant as financial institutions become more dependent on advanced AI systems and external technology infrastructure. In July, the European Supervisory Authorities, including ESMA, called for a consistent, risk-based approach to managing information and communications technology risks associated with frontier AI models. ESMA

The authorities emphasized governance, risk management and the prevention, detection and management of cyber risks associated with increasingly capable AI systems.

ESMA’s broader digital-finance work is also expanding. The authority has been developing data and digital strategies and using technology-driven supervisory tools to strengthen monitoring across European financial markets. ESMA

ESMA’s Supervisory Priorities Evolve

Union Strategic Supervisory Priorities are designed to coordinate supervisory work across the EU around risks considered strategically important for investor protection, financial stability and orderly financial markets.

ESMA identifies up to two such priorities every three years, with the objective of promoting greater convergence among national regulators. ESMA

The new digital-innovation priority will replace neither existing digital-asset oversight nor operational-resilience work. Instead, it will add a coordinated framework specifically focused on how emerging technologies are being incorporated into financial products and services.

Meanwhile, ESMA is concluding its separate USSP on environmental, social and governance disclosures, which began in 2023. ESMA

Outlook

ESMA’s 2027 initiative signals that AI and tokenization are moving from emerging technology topics toward established supervisory priorities within European financial markets. The initial mapping and firm-level reviews should give national regulators a clearer picture of how these technologies are being deployed and where common supervisory standards may be needed.

For financial institutions, the focus will extend beyond whether AI or tokenized assets are being adopted to how those technologies affect investor understanding, product design, operational resilience and market integrity. As adoption develops, ESMA’s flexible framework could also expand to address additional digital technologies and risks.