The European Commission’s consultation on Artificial Intelligence (AI) in Financial Services is part of the broader AI Act, a horizontal legislation regulating AI across multiple sectors, including finance. While AI systems in financial services must comply with existing frameworks like MiFID and MAR, there is still a need for clarity on AI usage beyond the “high-risk” fiinancial applications identified in creditworthiness assessments and insurance pricing, which would require stringent transparency and oversight. Despite these frameworks, practical implementation challenges remain.
This consultation, primarily directed at firms applying AI in financial services – such as data providers, investment firms, financial institutions, and fintech companies – seeks technical input on the benefits, risks, and alignment of AI systems with financial regulations. It also explores AI’s use in advisory services, internal processes, trading, and risk mitigation, areas where BETTER FINANCE sees potential for retail investor protection and market integrity. We emphasise that AI systems must deliver “best interest” outcomes, noting that tailored offers do not always translate to the most suitable solutions for retail investors, which presents a risk.
Overall, BETTER FINANCE views this consultation as a crucial step for legislators to ensure AI-driven technologies can protect and empower retail investors while upholding fairness, transparency, and integrity in the market. AI offers opportunities for innovation, such as processing complex data like ESG metrics and enhancing personalised financial solutions. However, these benefits come with risks related to transparency, bias, and ensuring AI operates in the best interest of the client.
BETTER FINANCE Key Responses
BETTER FINANCE key points in response to the consultation has highlighted the following concerns and recommendations.
Transparency and Explainability
AI systems are creating new, sophisticated and complex services that may appear simple to consumers, potentially leading to confusion. BETTER FINANCE emphasises that retail investors must have clear explanations of how AI-driven decisions are made, especially in robo-advisory services, credit scoring, and investment offers.
AI systems should be transparent and understandable so that retail investors can assess whether the recommendations and decisions align with their best interests. Moreover, the ability to test AI outcomes or platforms shall be provided without lock-in of necessity to provide extensive set of personalised data.
Suitability, Tailored Advice, and Best Interest of Clients
While AI can provide tailored financial products, BETTER FINANCE stresses that tailored advice does not always mean the product is suitable for the retail investor. AI systems must be designed to ensure that the offers align with the best interest of the client, not just based on data patterns. The AI-driven personalisation must result in products that are both personalised and suitable to the client’s financial goals and needs.
Additionally, human oversight remains crucial in verifying that AI systems deliver suitable financial advice and outcomes that serve the investor’s best interests, ensuring ethical decision-making and avoiding conflicts of interest.
Bias, Discrimination, and Ethical Considerations
AI systems, if not properly managed, can perpetuate bias and discrimination, particularly in sensitive areas like credit scoring and insurance pricing. BETTER FINANCE advocates for strong safeguards to ensure that AI operates ethically, with measures to prevent biases that may unfairly disadvantage certain demographic groups. AI systems must integrate best interest principles into decision-making processes to mitigate risks of biased outcomes.
Consumer Data Protection, Consent and Awareness
BETTER FINANCE underscores the need for stringent data protection mechanisms. Retail investors should fully understand how their data is used in AI systems and be given easy option to opt-out or always request human review of AI-driven decisions, beyond only sensitive areas such as creditworthiness and insurance pricing or investment advice.
Accountability and Liability
BETTER FINANCE calls for clear and well-defined accountability frameworks to ensure that financial institutions remain responsible for AI-driven decisions, even when AI systems are provided by third-party vendors. In cases where AI errors or failures cause harm, the liability should be transparent and fall on the institutions deploying these technologies.
AI-Washing and Consumer Mistrust
BETTER FINANCE raises concerns about AI-washing, where simple automation is branded as sophisticated AI, potentially misleading consumers and undermining trust. We advocate for accurate and transparent labelling of AI services to ensure that consumers are not misled about the capabilities and risks of AI-driven products.
Ethical AI Use and Market Integrity
Ensuring that AI is deployed ethically and in ways that preserve market integrity is critical. BETTER FINANCE stresses the importance of monitoring AI applications, particularly in trading systems, to avoid manipulation, conflicts of interest, and unfair practices. AI should contribute to fair, transparent, and competitive markets, and ethical use must be guaranteed.
For a detailed view of the responses to the targeted questions in the consultation document, please refer to the attached document below.