On 30 May 2024, the European Securities and Markets Authority (ESMA) issued a statement providing initial guidance for firms that use artificial intelligence (AI) technologies when providing investment services to retail clients.

ESMA states that, when using AI, it expects firms to comply with relevant MiFID II requirements, particularly in relation to organisational aspects, conduct of business, and their regulatory obligation to act in the best interest of the client.

It also warns that, while AI offers potential benefits to firms and clients, it also poses inherent risks including:

  • Algorithmic biases and data quality issues.
  • Opaque decision-making by a firm’s staff members.
  • Over-reliance on AI by both firms and clients for decision-making. 
  • Privacy and security concerns linked to the collection, storage, and processing of the large amount of data needed by AI systems.

Investment firms are reminded that potential uses of AI that would be covered by MiFID II requirements include customer support, fraud detection, risk management, compliance, and support to firms in the provision of investment advice and portfolio management. 

ESMA and the national competent authorities plan to continue monitoring the use of AI in investment services and the relevant EU legal framework to determine whether further action is needed in this area.