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EU has a ‘warning’ for banks, investment firms using AI – Times of India

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The European Union (EU) has a warning for banks and investment firms operating in the region. In its first statement on AI, the EU’s securities watchdog, the European Securities and Markets Authority (ESMA) said that financial institutions that are using artificial intelligence (AI) cannot neglect boardroom responsibility and a legal obligation to protect their customers.
The ESMA has also set out guidelines on how financial firms regulated in the 27-country bloc can use AI in day-to-day operations. These guidelines will help banks and investment firms to comply with the EU’s MiFID securities law. This law increases the transparency across the EU’s financial markets and standardises the regulatory disclosures required for firms operating in the region.

What ESMA said about using AI in the financial sector

The EU watchdog said that AI not only has the potential to enhance investment strategies and client services, but it also comes with inherent risks. With AI used for financial services, the possible impact on retail investor protection is likely to be significant, ESMA noted.

The regulator said: “Importantly, firms’ decisions remain the responsibility of management bodies, irrespective of whether those decisions are taken by people or AI-based tools. 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 firm’s management body should have an appropriate understanding of how AI technologies are applied and used within their firm and should ensure appropriate oversight of these technologies.”
In December 2023, the EU lawmakers passed the world’s first comprehensive regulation for AI, called the AI Act. However, this new law still needs to be approved by the European Parliament and won’t take effect until 2025 at the earliest.
In a statement, the European commissioner who helped negotiate the deal, Thierry Breton, said: “Europe has positioned itself as a pioneer, understanding the importance of its role as global standard setter.”

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