EU issues a cautionary message to banks and investment firms using AI

Banks and investment firms within the European Union are required to uphold boardroom responsibility and fulfill legal obligations to safeguard customers when utilizing artificial intelligence (AI), as stated by the bloc’s securities watchdog in its inaugural commentary on AI.

The European Securities and Markets Authority (ESMA) outlined guidelines on Thursday detailing how financial institutions regulated across the 27-country bloc can integrate AI into daily operations while ensuring compliance with the EU’s MiFID securities law.

While AI holds potential in enhancing investment strategies and client services, ESMA cautioned that it also entails inherent risks, with significant implications for the protection of retail investors. ESMA emphasized that ultimate responsibility for firms’ decisions lies with management bodies, regardless of whether these decisions are made by humans or AI-based tools.

The statement extends beyond instances where banks or investment firms develop or adopt AI tools themselves to encompass the utilization of third-party AI technologies, such as ChatGPT and Google Bard, with or without direct knowledge and approval from senior management.

ESMA stressed the importance of management bodies having a comprehensive understanding of how AI technologies are applied within their firms and ensuring adequate oversight of these technologies to uphold client interests.

While the statement primarily addresses compliance with MiFID, it is distinct from the EU’s forthcoming landmark rules on AI, which are set to take effect next month and establish a potential global benchmark for AI usage in business and daily life. Additionally, efforts are underway at the global level, particularly by the Group of Seven economies (G7), to establish safeguards for the safe development of this rapidly evolving technology.


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