Can we trust an AI-powered financial system?

AI is not business as usual. Without a fundamental rethink of the rulebook, AI could spell the end of accountability in finance, says Finance Watch. 

The latest Finance Watch report urges European policymakers to step back and take stock. The regulatory framework must be reassessed, the AI Act expanded, and a clear liability regime established. Allowing AI to make harmful decisions unchecked puts consumers at risk and threatens the stability of the financial system. 

When things go wrong, responsibility matters. If AI denies credit, triggers a market crash, or locks vulnerable people out of insurance, authorities need to know why, and who is accountable. But AI models operate in a ‘take it or leave it’ manner, where even their own developers struggle to explain outputs. This black-box logic undermines transparency and accountability, making effective oversight impossible. 

„AI contradicts some of the most fundamental principles underlying the financial system and existing financial regulation such as accountability, responsibility and transparency. Without robust explainability and data governance requirements, AI-powered decisions could undermine confidence in the fairness of financial markets. Accountability is necessary to ensure fair, clear and non-misleading practices.” -said Thierry Philipponnat – Chief Economist at Finance Watch.

Despite these dangers, policymakers are withdrawing support for safeguards. At the AI Action Summit, European leaders shifted their focus away from AI safety towards AI “competitiveness”. Within days, the European Commission scrapped its AI Liability Directive (AILD). This sends a clear message – profits come first, consumer protection last. 

„A free market economy without accountability is a license to rip off customers. By abandoning the AI liability regime, the European Commission is telling US tech giants that they can benefit from the EU market without any responsibility for what they are selling to EU citizens.” – added Thierry Philipponnat.

Finance Watch is calling on EU policymakers to reverse course before it’s too late:

1. Expand the AI Act to cover all financial services
2. Regulate AI at the data and governance level
3. Conduct a full regulatory gap analysis to ensure all financial AI applications are properly covered

AI is here to stay, but the rules that govern it must serve the public interest, not just the bottom line. Europe cannot afford to trade consumer protection and financial stability for an AI-powered free-for-all.

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Finance Watch is an independently funded public interest association dedicated to making finance work for the good of society. Its mission is to strengthen the voice of society in the reform of financial regulation by conducting advocacy and presenting public interest arguments to lawmakers and the public. Finance Watch’s members include consumer groups, housing associations, trade unions, NGOs, financial experts, academics and other civil society groups that collectively represent a large number of European citizens. Finance Watch’s founding principles state that finance is essential for society in bringing capital to productive use in a transparent and sustainable manner, but that the legitimate pursuit of private interests by the financial industry should not be conducted to the detriment of society.