Application of Artificial Intelligence in the Capital Market – Legal Frameworks, Risk Management, and Regulatory Approaches

Sovilj, Ranko (2025) Application of Artificial Intelligence in the Capital Market – Legal Frameworks, Risk Management, and Regulatory Approaches. In: Application of artificial intelligence in legal dispute resolution: comparative legal perspectives. Faculty of Law, University of Banja Luka, Banja Luka, p. 30. ISBN 978-99976-54-33-5

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Abstract

Artificial intelligence (AI) has significantly reshaped capital markets through its deployment in algorithmic trading, portfolio management, ris assessment, market surveillance, predictive analytics, and regulatory compli­ ance mechanisms. Hence, the impact of the application o_f artificial intelligence on international capital markets has notably transformed the legal landscape, introducing new opportunities and challenges for regulators, market par­ ticipants, and governments. However, the proliferation of AI technologies within capital markets also gives rise to a range oflegal, ethical, and system­ ic challenges. These include concerns related to algorithmic accountability transparency, regulatory ambiguity, data bias, investor vulnerability, mar­ ket integrity and stability, and potential systemic risk. These risks require rigorous supervision, robust governance frameworks, and appropriate regu­ latory intervention to mitigate potential financial instability and ensure the fair and lawful artificial intelligence application. Therefore, it is necessary to develop and implement comprehensive regulatory frameworks to ensure market integrity, investor protection and financial stability. Regulatory au­ thorities across jurisdictions are implementing AI governance frameworks, balancing innovation with market stability. These regulatory measures show regional differences, with certain jurisdictions adopting technology-neutral approaches, while others formulate AI-specific policies aimed at mitigating new financial risks. A comparative and normative analysis of the existing legal framework governing the application of artificial intelligence in capital mar­ kets will provide an adequate basis for a critical assessment and analysis of the relevant regulatory provisions in Serbia related to this area. Hence, the aim of this paper is to examine the principal use cases of arti ficial intelligence in capital markets,analyzes the associated legal and operational risks, and evalu­ ::it e:s emern:iniz reizulatorv approaches intended to address these complexities.

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