Italy's financial market regulator, Consob, has revealed groundbreaking efforts to integrate artificial intelligence (AI) into its supervisory processes.

The watchdog announced on Tuesday that it has been testing AI algorithms to streamline the approval of listing prospectuses and enhance the detection of insider trading.

"These algorithms could support preliminary analyses for the detection of suspected cases of insider trading, to be followed by targeted investigation activities," Consob stated in its annual report.

The regulator highlighted the remarkable efficiency gains, noting that "the algorithm takes three seconds to catch an error, the expert human analyst at least 20 minutes."

Three prototypes were developed as part of this initiative. Two were created in-house in collaboration with the prestigious Scuola Normale Superiore university in Pisa in 2022, while a third model was subsequently developed.

Consob's next step is to transition from the prototype phase to fully integrating AI into its regular supervisory activities. This move is expected to significantly improve the quality of controls in detecting market misconduct.

The Italian regulator's AI adoption aligns with a broader trend among financial watchdogs worldwide. In the UK the Financial Conduct Authority has been leveraging AI to protect consumers from online scams.

As regulatory bodies continue to explore AI's potential, market participants and investors alike are watching closely to see how these technological advancements will shape the future of financial regulation.

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