EU Watchdog Presses Banks to Prioritize Clients in AI Use

Banks and investment firms must ensure AI tools prioritize customer interests under MiFID, per ESMA, the EU’s top financial regulator.

When it comes to using artificial intelligence, banks and financial firms need to have an “unwavering commitment” to their clients’ best interests, according to the European Securities and Markets Authority (ESMA).

The use of artificial intelligence in banks and financial services operations by EU financial services organizations was described in a public statement issued by ESMA on May 30.

The statement emphasizes the application of artificial intelligence in connection with the EU’s Markets in Banks and Financial Instruments Directive (MiFID) securities legislation. It states that these establishments will bear full legal responsibility for safeguarding customers.

While AI has the potential to “transform” the retail investment services industry in terms of innovation and efficiency, the ESMA stated that it is likely to have a “significant” influence on financial institutions’ practices and the protection of retail investors.

“Importantly, firms’ decisions remain the responsibility of management bodies, irrespective of whether those decisions are taken by people or AI based tools.”

It added that regardless of the AI technologies being used, financial services companies using AI would need to have an “unwavering commitment” to working in their clients’ best interests.

This is true for AI tools that financial institutions develop or use independently and for AI services that they choose to use from outside providers. Generative AI chatbots like Google’s Gemini and OpenAI’s ChatGPT would fall into this category.

The first comprehensive set of AI legislation in history was formally passed by EU authorities earlier this year and will be implemented throughout the 27-member union. This most recent declaration only correlates with compliance with MiFID and is distinct from the EU AI Act.

In addition to AI law, the EU has taken the initiative in other AI-related matters. For example, on May 24, the EU Council decided to use supercomputers to strengthen the AI ecosystem in the area and assist entrepreneurs.

In a paper published on May 27, the European Blockchain Observatory and Forum (EUBOF) emphasized how blockchain and AI interfaces might spur regional innovation, especially in the “healthcare and finance sectors, where data security is paramount”.