European financial regulators are set to increase scrutiny of artificial intelligence and tokenization as their use expands across customer-facing financial services.

The European Securities and Markets Authority (ESMA) said these technologies, along with other emerging tools relevant to financial markets, will become a supervisory priority from 2027.

ESMA said financial firms are increasingly integrating AI and tokenized products into their daily operations to compete for market share. While acknowledging the potential advantages of technological innovation, the regulator said these developments can also create new risks.

As part of the new supervisory approach, ESMA and national authorities across the European Union will examine how regulated institutions use AI and tokenized products in their main business activities. The review will focus on applications that affect customers rather than being limited to internal or back-office functions.

The program, named “Innovation with investor safeguards,” aims to strengthen supervisors’ ability to oversee emerging technologies. Regulators will also assess whether firms have appropriate governance structures, dependable data and processes designed to deliver outcomes aligned with their clients’ interests.

ECB Deepens Focus on Tokenized Markets

The European Central Bank (ECB) has also taken recent steps related to tokenization and stablecoins.

Earlier this week, the ECB announced plans to invest a small portion of its reserves in tokenized securities. The move would give the central bank direct exposure to blockchain-based financial markets.

The announcement followed the launch of Pontes, a wholesale platform developed by the ECB to connect distributed ledger technology (DLT) market infrastructure with its traditional payment infrastructure. Pontes is separate from the retail digital euro pilot expected in 2027.

The ECB and the central banks of the EU’s 27 member states also called for broader restrictions on crypto platforms that offer yields, rewards or returns on stablecoins. The institutions argued that fiat-pegged digital assets should be viewed as money rather than savings products.

Regulators Broaden Their Approach

European authorities will map where financial institutions currently use AI and tokenization and where they expect to deploy the technologies in customer-facing products and processes.

Supervisors will also carry out initial reviews of selected firms that are particularly exposed to these developments and determine where tokenization is already gaining practical use within financial markets.

The initiative signals a broader approach to financial technology regulation following the implementation of the Markets in Crypto-Assets (MiCA) framework on July 1. Instead of concentrating solely on crypto-asset regulation, EU authorities are increasingly examining how AI and tokenization are reshaping the wider securities industry.