Artificial Intelligence (‘AI’) technologies present great opportunities for the investment management industry (as well as broader financial services). However, there are presently no regulations specifically aiming at AI in investment management. Does this mean that AI is currently unregulated? If not, which hard and soft law rules apply?

Investments are a heavily regulated industry (MIFID II, UCITS IV and V, SM&CR, GDPR etc). Most regulations are intentionally technology-neutral. These regulations are legally binding (hard law). Recent years saw the emergence of regulatory and industry publications (soft laws) focusing specifically on AI. In this Article we analyse both hard law and soft law instruments.

The contributions of this work are: first, a review of key regulations applicable to AI in investment management (and oftentimes by extension to banking as well) from multiple jurisdictions; second, a framework and an analysis of key regulatory themes for AI.

The controversial and long-awaited Commission Proposals to revise the cornerstone Markets in Financial Instruments Directive 2004 (MiFID I) were presented in October 2011. The Proposals are currently going through the Council and Parliament negotiation process, and final agreement is expected sometime in 2013. This article places these important reforms (together, MiFID II) in context by examining the impact of MiFID I since its application to EU financial markets in November 2007, and by considering what MiFID I's impact suggests for the design of MiFID II. It considers how MiFID I reshaped the EU share trading marketplace and how the dominant interests which shaped MiFID I's regulatory design fared. It also examines how those interest groups are seeking to shape MiFID II, and the implications. It suggests that the influence of interest groups may have led to overly ambitious MiFID II Proposals which are excessively concerned with investment firm and trading platform interests, and not sufficiently focused on the overall efficiency and effectiveness of EU share trading markets. It calls for a more modest approach to reform, based on fine-tuning MiFID I.

European securities regulation and corporate governance are test cases for determining whether efficient rules will be obtained by dynamic competitive processes or centralised regulatory action. The 2004 Markets in Financial Instruments Directive (MIFID) belies the diagnosis that Europe may be experiencing ‘regulatory fatigue’. On the contrary, an important policy change has been ushered in, as MIFID is intended to shape a pan-European retail culture through law. In this issue, Niamh Moloney undertakes a comprehensive analysis of the Directive, emphasising that the relationship between law and investor activity is still unproven.