The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, has issued a statement providing initial guidance to firms using Artificial Intelligence technologies (AI) when they provide investment services to retail clients.
While the diffusion of AI is still in its initial phase and the development is not uniform across firms and Member States, the potential impact on firms’ behaviours and retail investor protection is likely to be significant. Importantly, firms’ decisions remain the responsibility of management bodies, irrespective of whether those decisions are taken by people or AI-based tools. To ensure compliance with MiFID II obligations and safeguarding investors’ interests of AI-driven solutions, ESMA has decided to publish a statement to provide some initial guidance to investment firms utilising AI, in light of their key obligations under MiFID II and to emphasise the imperative to always prioritise clients’ best interests.
When using AI, ESMA expects firms to comply with relevant MiFID II requirements, particularly when it comes to organisational aspects, conduct of business, and their regulatory obligation to act in the best interest of the client.
ESMA said that although AI technologies offer potential benefits to firms and clients, they also pose inherent risks, such as:
- Algorithmic biases and data quality issues;
- Opaque decision-making by a firm’s staff members;
- Overreliance on AI by both firms and clients for decision-making; and
- Privacy and security concerns linked to the collection, storage, and processing of the large amount of data needed by AI systems.
Potential uses of AI by investment firms which would be covered by requirements under MiFID II include customer support, fraud detection, risk management, compliance, and support to firms in the provision of investment advice and portfolio management.
ESMA and the National Competent Authorities (NCAs) said they will keep monitoring the use of AI in investment services and the relevant EU legal framework to determine if further action is needed in this area.
The full ESMA statement on AI can be seen here.
