Digital innovation and artificial intelligence: Evolving asset management Regulation 2025 report

Regulatory approaches to digital innovation and AI are in flux with authorities seeking to find the right balance between promoting innovation and ensuring potential risks are controlled.

In this year’s edition of KPMG International’s Evolving Asset Management Regulation report, KPMG professionals examine the current state of regulatory play on digital and AI with a focus on helping asset managers create effective compliance frameworks.

As digital innovation spreads across the asset management industry, many regulators are reassessing their approaches to ensure risks are being appropriately managed. Regulation related to AI is in flux. The landscape for fund tokenization is being refined. And digital assets are also experiencing something of a regulatory overhaul.

Across these topics, the one commonality is regulatory divergence, which will be particularly challenging for global asset managers seeking to develop and deploy AI tools and technology centrally at an enterprise level.

“While the specifics may be diverging, there is a clear direction for regulatory travel around digital innovation,” says Jim Suglia, KPMG International’s Global Head of Asset Management. “We are seeing greater regulatory support for new and innovative products, better facilitation of technological developments in a regulated environment and more targeted policymaking alongside more proportionate supervision.”

As such, it will be important to ensure that effective compliance frameworks are developed as AI and technology use cases are scaled up in the business, from portfolio management and advice, all the way through to customer experience and support.

Diverging approaches to AI regulation

AI provides a case in point. Approaches to the regulation of the technology continue to evolve around the world, with differing views and increasingly stark policy divergence emerging across jurisdictions.

The reality is that – while few transformational AI use cases have become mainstream in asset management to date, – global financial services regulators continue to investigate potential financial stability impacts. Regulators acknowledge the potential benefits associated with AI. Yet there is tension in approaches between those seeking to set a gold standard with specific requirements around the use of AI, versus a reliance on the existing, technology-agnostic regulatory framework.

Where some jurisdictions have not yet rolled out new legislation or guidance, authorities continue to monitor developments and potential risks and consider their next steps. While others are seeking to remove any barriers that could stand in the way of innovation.

Facilitating fund tokenization

At the same time, the regulatory landscape for fund tokenization is being refined. As we noted in last year’s Evolving Asset Management Regulation report, the past few years have seen a raft of new guidance and initiatives focused on fund tokenization.

Over the last year, regulators have continued their progress, exploring how tokenization can be facilitated in a manner that delivers good outcomes for investors. Supervisors have continued to publish guidance aiming to provide sufficient clarity for tokenization to move from small pilots to mainstream adoption – potentially unlocking cost savings and reducing complexity for fund managers and their investors.

Some coordination is happening at an international level with IOSCO coordinating efforts and plans to continue to closely monitor developments in asset tokenization, recognizing its potential for growth and its implications on investor protection and market integrity.

Regulating digital assets

While the regulation of digital assets (cryptoassets) is largely beyond the scope of this report, it is worth noting that there has been a further flurry of regulatory activity this year with implications for asset managers as investors.

Significant new policies have been rolled out globally and adjustments to frameworks or proposed approaches have been made – increasingly with one eye on growth and competitiveness. There has also been an observable pivot in the stance of some regulators towards facilitating greater access to innovative products.

Opportunities and risks

Opportunities for asset managers
Risks for asset managers

Product innovation:

Consider how growing your private markets capability can support product diversification (including higher margin products), offsetting fee pressure in public market products and taking advantage of growing private market allocations by asset owners.
Enhanced liquidity risk management:

With the final wave of international fund liquidity-related recommendations announced, consider how you might put in place a future-proof operating model and governance arrangements.
Efficient operating models:

Revise your operating model to efficiently bring together your firm’s public and private markets activities, with a focus on enabling functions such as risk and compliance to have coverage over all relevant risks.

Insufficient capabilities:

Assess what new skills and experience could be required in complex areas of private markets (such as valuation and liquidity management).
Poor outcomes:

Identify and mitigate key risks for retail products, particularly in the context of defining the appropriate target market, the transparency of client disclosures and the robustness of liquidity management arrangements.
Risk and compliance maturity:

Ensure that the risk and compliance function keeps pace with evolving regulatory expectations (for example, around private asset valuation), significant policy developments (such as the transition to T+1) and product evolution (for example, relate to retail private asset exposure).