European Union: Adopted ESMA public statement on the use of Artificial Intelligence (AI) in the provision of retail investment services

On 30 May 2024, the European Securities and Markets Authority (ESMA) published its statement on the use of Artificial Intelligence (AI) in the provision of retail investment services. According to the ESMA, AI poses several possible risks, such as a lack of accountability and oversight, a lack of transparency and explainability, security and data privacy risks, or robustness and data quality risks. The ESMA states that management remains responsible for the company's decisions, regardless of whether an AI system makes the decision or not. Concerning the Markets in Financial Instruments Directive requirements, the ESMA first notes that the general obligation to act in the best interest of the client applies "irrespective of the tools that the firm decides to adopt in the provision of services". Further, the information should be provided to the client on how the company uses AI systems. Second, regarding organisational requirements, the management body should understand how AI technologies are used in their firm and ensure proper oversight of these technologies. Amongst others, this includes conducting risk management. Third, ESMA stated that the use of AI systems requires increased diligence, especially in ensuring the suitability of services and financial instruments for each client. Lastly, companies are required to keep books about their AI use.