EU Securities Watchdog Issues Guidelines on AI Use in Financial Firms

The European Securities and Markets Authority (ESMA) has issued its first statement on artificial intelligence (AI), emphasizing that banks and investment firms in the European Union must uphold boardroom responsibility and legal obligations to safeguard customers when using AI technology.

In its statement released on Thursday, ESMA outlined guidelines for financial firms regulated within the EU on the appropriate use of AI in their day-to-day operations to ensure compliance with the EU's MiFID securities law.

While acknowledging the potential benefits of AI in improving investment strategies and client services, ESMA also highlighted the inherent risks associated with its use, particularly regarding the protection of retail investors.

ESMA emphasized that the decisions made by financial firms, whether by human operators or AI-based tools, ultimately remain the responsibility of management bodies. It stressed the paramount importance of acting in clients' best interests, irrespective of the tools employed in service provision.

The statement provided guidance not only on the development and adoption of AI tools within banks and investment firms but also on the use of third-party AI technologies, whether with or without the direct knowledge and approval of senior management.

ESMA underscored the necessity for the management body of financial firms to possess a comprehensive understanding of how AI technologies are applied and utilized within their organizations.

It called for appropriate oversight of these technologies to ensure compliance with regulatory requirements.

The statement issued by ESMA focuses specifically on compliance with MiFID and is distinct from the EU's forthcoming regulations on AI, which are set to take effect next month.

These regulations are expected to establish a potential global standard for the use of AI in various sectors.

At the global level, efforts are also underway, led by the Group of Seven (G7) economies, to establish safeguards for the safe and responsible development of AI technology amid its rapid evolution.