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From AI harm to tokenized securities, this edition of Risk Wrap highlights six developments shaping compliance, governance, and insurance exposure across high‑risk industries.
AI Harm Cases Raise New Liability Questions
Legal experts warn that AI-induced psychological harm could increase the risk of serious violent incidents.
This follows the Tumbler Ridge school shooting in Canada, where the suspect, 18-year-old Jesse Van Rootselaar, had reportedly interacted extensively with ChatGPT prior to the attack. Reports indicate the chatbot provided information related to weapons and past violent events.
She had previously been engaging with the system about feelings of isolation and an obsession with violence. This culminated in her killing her mother, 11-year-old brother, five students, a teaching assistant, and herself.
In another case, Jonathan Gavalas, age 36, nearly carried out a multi-fatality attack before committing suicide after weeks of interaction with Google’s Gemini. According to reports, the system reinforced a delusional narrative, convincing him it was his wife and that federal agents were pursuing him, and directed him toward actions that could have resulted in large-scale harm.
Jay Edelson, the lead lawyer on the Gavalas case, has warned that more cases may emerge involving severe harm linked to AI-driven delusions. His firm is investigating additional incidents, including cases that were prevented before harm occurred, and reports receiving roughly one serious inquiry per day.
He notes a recurring pattern: interactions often begin with users expressing isolation or distress, before escalating into conspiratorial narratives where the user believes they must act.
Separate testing has also raised concerns about safeguards. In one study, a majority of leading chatbots failed to consistently shut down harmful prompts. Only a limited number actively discouraged escalation.
Implications for brokers and their clients:
- Investigate specialized AI insurance and product liability coverage to address harms stemming from system outputs and user interactions.
- Consider directors and officers insurance to protect leadership from claims alleging failure to manage AI risks and safeguards.
- Investigate business interruption insurance to manage the cost of suspending or modifying AI systems if they are found to pose a safety risk.
Source: TechCrunch (March 15, 2026). Lawyer behind AI psychosis cases warns of mass casualty risks.
Emerging insurance industries mentioned: Artificial Intelligence Insurance.
EU Backs Faster Clinical Trials but Warns of Data Protection Risks
In a joint opinion, the European Data Protection Board and the European Data Protection Supervisor support the EU’s proposed European Biotech Act, which aims to harmonize clinical trial rules and reduce fragmentation across member states. A key objective is to provide a clearer legal basis for processing personal data in clinical trials.
The proposal is expected to strengthen the EU’s competitiveness in biotechnology by making cross-border research more efficient.
But regulators are drawing clear boundaries. They stress that simplification must not weaken data protection standards, and recommend safeguards including clearer allocation of data controller responsibilities, more precise rules on further data use, and increased reliance on pseudonymisation where identifiable data isn’t required.
The direction is consistent: streamline the system, but maintain strict control over sensitive data.
Implications for brokers and their clients:
- Investigate clinical trial insurance that includes exposure related to handling sensitive personal and health data.
- Investigate cyber liability insurance covering breaches, unauthorized access, and misuse of clinical trial data.
- Review whether D&O policies cover shareholder lawsuits alleging mismanagement when clinical trials are delayed due to regulatory enforcement.
Source: European Data Protection Board (March 12, 2026). EDPB and EDPS support harmonisation of clinical trials under European Biotech Act, but call for specific safeguards for sensitive health data.
Emerging insurance industries mentioned: Biotechnology Insurance.
Australia Advances Crypto Licensing Framework to Bring Platforms Under Financial Regulation
Australia is moving to bring crypto platforms into its traditional financial regulatory regime.
The proposed Corporations Amendment (Digital Assets Framework) Bill 2025 would classify digital asset platforms and tokenised custody providers as financial products under the Corporations Act and the Australian Securities and Investments Commission Act. In practice, most platforms holding customer assets would need to obtain an Australian Financial Services Licence and comply with ASIC oversight.
The bill has not yet been passed. But it has gained backing from a Senate committee, signalling clear regulatory direction.
Critics have raised concerns around how the bill defines “digital token” and “factual control,” warning it could capture firms that don’t have unilateral control over user assets. Regulators have acknowledged the issue, but the definitions remain unchanged for now.
Implications for brokers and their clients:
- Investigate crypto custody and crime insurance to protect against theft, loss of private keys, and internal fraud.
- Review whether policies cover regulatory investigation and enforcement to manage the cost of compliance-related inquiries.
- Consider business interruption insurance that accounts for regulatory shutdowns or licensing delays that could disrupt operations under the new regime.
Source: CoinMarketCap (March 2026). Australia Backs Crypto Exchange Licensing Bill.
Emerging insurance industries mentioned: Digital Asset and Web3 Insurance.
Stablecoins Dominate Illicit Crypto Activity as Regulators Push for Crackdown
Recent analysis shows that stablecoins now account for around 84% of illicit crypto transaction volume, driven by their liquidity, price stability, and widespread use.
Much of this activity is linked to secondary markets, particularly where transactions involve non-custodial (unhosted) wallets. These environments reduce the effectiveness of traditional compliance controls and make monitoring more complex.
These trends are highlighted in a recent report by the Financial Action Task Force (FATF), which is calling for more comprehensive oversight. The FATF is urging authorities to implement end-to-end monitoring across the stablecoin lifecycle, from issuance through circulation to redemption.
It also notes that when suspicious activity is identified in secondary markets, regulators may engage directly with issuers to activate controls such as freezing assets to contain risk.
The FATF recommends that virtual asset service providers and financial institutions strengthen AML and CFT controls across the ecosystem. This includes using blockchain analytics to assess counterparty risk, and multi-hop transaction analysis to better understand how funds move through networks. In some cases, limits on transactions involving unhosted wallets may be appropriate.
Stablecoin issuers are also expected to strengthen technical and governance frameworks. This could include programmable controls, such as allow- and deny-lists, to restrict high-risk transactions, alongside broader use of analytics to detect systemic misuse.
Implications for brokers and their clients:
- Review whether existing policies offer adequate coverage for regulatory investigations as AML requirements evolve.
- Investigate tech E&O insurance that’s tailored to blockchain-driven operations.
- Consider business interruption coverage to address operational disruption caused by regulatory interventions or asset freezes.
Source: Chainalysis (March 11, 2026). Assessing the FATF Targeted Report: The Shift Toward Secondary Market Monitoring for Stablecoins.
Emerging insurance industries mentioned: Digital Asset and Web3 Insurance.
Space Could Become a High-Risk Battleground as Congestion and Conflict Rise
Space industry leaders are warning that growing congestion, geopolitical tension, and the overlap between military and civilian technologies are making space a more unstable domain.
At a recent summit in Singapore, officials and executives stressed that space infrastructure is now deeply embedded in modern society, and increasingly a target. Threats include cyberattacks, signal jamming, and satellite “shadowing” between nations.
At the same time, the rapid expansion of satellite constellations is driving congestion and increasing the probability of collisions and other incidents in orbit.
Speakers also emphasized the need to treat space as a shared global resource, supported by common standards and data sharing. But that principle is under strain as more countries pursue independent capabilities, sometimes in ways that create debris or reduce interoperability.
The result is a more complex operating environment with physical, cyber, and geopolitical risks increasingly intertwined.
Implications for brokers and their clients:
- Investigate space economy insurance that covers launch and in-orbit risks as congestion increases.
- Consider business interruption insurance to protect against the downstream impacts of satellite outages that may affect critical services.
- Investigate cyber liability insurance addressing risks like jamming, hacking, and hostile interference.
Source: Channel News Asia (February 4, 2026). Cooperation, responsibility critical in space race as orbits grow more crowded, say industry players.
Emerging insurance industries mentioned: Space Economy Insurance.
SEC Greenlights Nasdaq Tokenization Pilot in a Breakthrough for Digital Securities
The SEC has approved Nasdaq’s proposal to pilot the issuance, clearing, and settlement of certain securities in tokenized form.
The program will operate within existing market infrastructure, with tokenized securities processed alongside traditional systems through established post-trade mechanisms. Investors holding tokenized securities will receive the same rights and protections as those holding conventional shares.
Nasdaq has stated that its core trading systems will remain unchanged, allowing tokenized assets to integrate with current architecture rather than replace it.
The pilot is limited in scope. But it marks a significant step toward bringing tokenization into regulated capital markets.
Implications for brokers and their clients:
- Consider tailored digital asset insurance that addresses risks in holding, transferring, and reconciling tokenized securities within existing financial systems.
- Investigate technology errors and omissions insurance covering failures in tokenization and smart contract logic.
- Investigate D&O insurance to protect executives against lawsuits over pilot decisions, regulatory non-compliance, or investor claims amid tokenization uncertainties.
Source: Bitcoin Magazine (March 18, 2026). SEC Approves Nasdaq Rule to Trade Tokenized Securities, Paving Way for Blockchain Integration.
Emerging insurance industries mentioned: Digital Asset and Web3 Insurance.
