Artificial Intelligence, Financial Literacy, and Capital Market Regulation: Rethinking Market Integrity in the Age of Smart Algorithms

Artificial intelligence (AI) is transforming capital markets by improving trading efficiency, market surveillance, and regulatory capacity. At the same time, its growing use in trading, investment management, and compliance creates new risks related to opacity, algorithmic manipulation, systemic instability, and accountability. This paper provides a theoretical and policy-oriented analysis of AI in capital market regulation, with particular emphasis on its economic, legal, ethical, and financial literacy dimensions. It examines how AI can strengthen supervisory technology (SupTech), regulatory technology (RegTech), and early warning systems, while also generating vulnerabilities linked to black-box decision-making, herding behavior, and biased data. The paper further argues that financial literacy is becoming an essential pillar of AI-driven markets, as investors increasingly rely on robo-advisors, algorithmic recommendations, and AI-mediated information. It concludes that effective governance of AI in capital markets requires a balanced framework that combines innovation, strong oversight, investor protection, and enhanced financial literacy to support market integrity and resilience.