The European Securities and Markets Authority (ESMA), the EU financial markets regulator and supervisor, has issued a statement providing initial guidance to firms using artificial intelligence (AI) technologies when providing investment services to retail clients.
While the spread of AI is still in its infancy and development is not uniform across companies and Member States, the potential impact on company behavior and retail investor protection is likely to be significant. Importantly, the decisions of companies remain the responsibility of governing bodies, regardless of whether these decisions are made by humans or AI-based tools. To ensure compliance with MiFID II obligations and safeguard investors’ interests for AI-based solutions, ESMA has decided to publish a statement to provide initial guidance to investment firms using AI, in light of of their key obligations under MiFID II and to emphasize the imperative to always put clients’ interests first.
When using artificial intelligence, ESMA expects firms to comply with the relevant requirements of MiFID II, in particular with regard to organizational aspects, conduct and their regulatory obligation to act in the best interests of the client.
ESMA said that while AI technologies offer potential benefits to businesses and customers, they also carry inherent risks, including:
- Algorithmic biases and data quality issues.
- Opaque decision-making by the staff members of a business.
- Over-reliance by both companies and customers on AI for decision-making. and
- Privacy and security issues associated with the collection, storage and processing of the large amount of data needed by artificial intelligence systems.
Potential uses of AI by investment firms that would be covered by the requirements under MiFID II include customer support, fraud detection, risk management, compliance and support for investment advisory and portfolio management firms.
ESMA and the National Competent Authorities (NCAs) said they will continue to monitor the use of artificial intelligence in investment services and the relevant EU legal framework to determine whether further action is required in this area.
The full ESMA Statement on AI you can see here.