European Parliament drafts demand for Commission to spell out how financial regulation applies to AI

A committee of the European Parliament has published a draft report on the impact of artificial intelligence on the financial sector. The tone of the draft is positive about the potential benefits of financial institutions using AI and so cautions against an overly restrictive and highly regulated approach. Reports of this kind are non-binding statements for the Parliament to express its view on a particular topic.

State of AI adoption in financial services 

The statement was released by the Committee on Economic and Monetary Affairs (the ECON Committee). The first part of the draft statement analyses the deployment of AI in the financial sector. It highlights that:

• deployment of AI by financial institutions has generally been prudent, for example the majority of AI use cases aim to streamline back-office processes rather than create new revenue streams involving high-risk innovation; and
• although there are risks associated with financial institutions’ use of AI, its use in the financial sector can bring numerous benefits. These include compliance-related benefits (such as fraud detection, anti-money laundering checks and transaction monitoring) and customer-related benefits (such as customer support, claims handling and personalised financial advice).

Regulatory landscape for AI in financial services

The draft statement then draws attention to the highly regulated nature of the financial services sector. In particular, the draft expresses concern about the difficulties financial institutions face when they are trying to meet their obligations under overlapping regulatory regimes, as with financial services law and the AI Act.

Draft recommendations

The draft statement includes the following recommendations in order to ensure responsible use of AI in financial services:

• The European Commission should provide clarity and guidance on how existing financial regulations apply to the use of AI in financial services, including through establishing consistent definitions and avoiding duplicated requirements within the regulatory framework.  
• Further sectoral legislation to regulate AI in financial services is unnecessary and should be avoided.
• Member States and the Commission should coordinate to prevent gold-plating of legislation relating to use of AI in financial services.
• European and national supervisory authorities should promote consistent interpretations of legislation, avoid an overly strict application of existing regulations and focus on tangible, operational risks rather than abstract or theoretical concerns.

Next steps

The draft report is only the first iteration of proposed statement. Other members of the ECON Committee will now have the opportunity to propose amendments to the statement and, once the draft has been finalised, it will be put to a vote in the ECON Committee and the European Parliament Plenary. It remains to be seen whether the finalised version of the report adopted by the European Parliament will align with the current draft. 

In its current form, the draft is likely to be welcomed by financial institutions for a number of reasons, including its identification of the risks around excessive regulatory burden on financial institutions, its positive stance on financial institutions using AI and its recognition that to date financial institutions have generally introduced AI in a prudent way.