The Political Economy of AI-Driven Financial Supervision

24 Pages Posted: 21 Jan 2022

See all articles by Gerard Hertig

Gerard Hertig

ETH Zurich; European Corporate Governance Institute (ECGI)

Date Written: October 28, 2021


AI-reliance is expected to improve risk management across the financial services industry, reinforcing the dominance of private ordering in ‘normal times’.

From a supervisory perspective, the use of AI can be expected to decrease regulatory enforcement costs while providing technology-advanced players with opportunities to game the regulatory system.

More fundamentally, AI-reliance is unlikely to either significantly improve the prompt and effective handling of systemic incidents or to increase systemic risk. However, the use of AI may go hand-in-hand with significant job losses.

Overall, the use of AI can be expected to have an impact on the respective roles of private ordering and state regulation. The former will become (rapidly) dominant in normal times while the latter will (slowly but increasingly) target systemic issues.

Keywords: Artificial intelligence, compliance, courts, financial supervision, investor protection, systemic risk

JEL Classification: K22, K23, L22, L23

Suggested Citation

Hertig, Gerard, The Political Economy of AI-Driven Financial Supervision (October 28, 2021). European Corporate Governance Institute - Law Working Paper No. 621/2022, Available at SSRN: or

Gerard Hertig (Contact Author)

ETH Zurich ( email )

Haldeneggsteig 4
CH-8092 Zurich


European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels


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