EU watchdog warns banks that AI doesn't absolve boardroom duty

As artificial intelligence (AI) continues to permeate the financial sector, the European Securities and Markets Authority (ESMA) has issued its first statement on the use of AI by banks and investment firms within the European Union.

The watchdog has made it clear that organisations cannot abdicate boardroom responsibility and their legal obligation to protect customers when utilising AI technologies.

In its statement, ESMA outlined how firms regulated across the 27-country bloc can leverage AI in day-to-day operations without contravening the EU's MiFID securities law. While acknowledging the potential benefits of AI in enhancing investment strategies and client services, ESMA cautioned that the technology also presents inherent risks, with the potential impact on retail investor protection being significant.

"Importantly, firms' decisions remain the responsibility of management bodies, irrespective of whether those decisions are taken by people or AI-based tools," ESMA stated. "Central to the use of AI in investment services is the unwavering commitment to act in clients' best interest, an overarching requirement which applies irrespective of the tools that the firm decides to adopt in the provision of services."

The statement covers not only instances where AI tools are developed or adopted by a firm itself but also the use of third-party AI technologies, such as OpenAI’s ChatGPT and Google’s Gemini – whether with or without the direct knowledge and approval of senior management.

The growing adoption of AI in financial services is a global trend, and efforts are underway at the international level to establish guardrails for the safe development of this rapidly evolving technology. The Group of Seven economies (G7) is working towards putting in place a framework to govern the use of AI, which could potentially set a global benchmark for a technology that is increasingly being used in business and everyday life.

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