Last updated on October 24, 2025
No, EU robo-advisors must disclose relevant risks, including algorithmic biases, when recommending financial products. Under MiFID II and the AI Act, transparency and investor protection are mandatory, especially for high-risk AI systems.
When the Algorithm Advises Your Investments
You log into your robo-advisor account, answer a few questions, and receive a tailored investment portfolio. It’s fast, efficient, and data-driven. But what if the algorithm behind it favors certain products or investor profiles? Can robo-advisors keep those biases under wraps?
In the European Union, the answer is no. Robo-advisors are required to disclose relevant risks—including algorithmic biases—when recommending financial products. EU law prioritizes transparency and investor protection, especially when artificial intelligence is involved.
The Legal Backbone: MiFID II and the AI Act
Robo-advisors in the EU operate under the Markets in Financial Instruments Directive II (MiFID II), which mandates that investment firms act in the best interest of clients. This includes providing clear, fair, and not misleading information, and managing conflicts of interest. When algorithms are used to generate investment advice, firms must ensure that clients understand how decisions are made and what risks are involved.
In May 2024, the European Securities and Markets Authority (ESMA) issued a public statement reinforcing these obligations. ESMA emphasized that firms using AI must comply with MiFID II requirements, particularly regarding organizational conduct, business practices, and the duty to act in clients’ best interests. Risks such as algorithmic bias, data quality issues, and opaque decision-making must be disclosed to clients.
The AI Act: Raising the Bar
The EU’s Artificial Intelligence Act, which entered into force in August 2024, adds another layer of regulation. It classifies robo-advisory systems as “high-risk AI” due to their potential impact on financial decisions. High-risk AI systems must meet strict requirements, including transparency, human oversight, and bias detection.
Under the AI Act, providers must implement safeguards to monitor and correct algorithmic bias. They are also required to inform users about the nature of the AI system, its capabilities, and any limitations that could affect decision-making. These rules aim to ensure that AI systems are trustworthy, ethical, and aligned with fundamental rights.
Why Bias Disclosure Matters
Algorithms are trained on historical data, which can reflect societal biases. If left unchecked, these biases can influence financial recommendations—steering certain groups toward riskier products or excluding others based on flawed assumptions. Without disclosure, clients may unknowingly receive advice that doesn’t serve their best interests.
EU regulators recognize this risk and require firms to be transparent about how their algorithms work. This includes explaining the logic behind recommendations and any factors that could skew outcomes.
Oversight and Accountability
ESMA and national regulators monitor compliance with MiFID II and the AI Act. Firms must document their algorithms, test for bias, and provide meaningful explanations to clients. Failure to disclose algorithmic risks can lead to enforcement actions, fines, and reputational damage.
The EU’s approach reflects a broader commitment to responsible AI—ensuring that technology enhances financial services without compromising fairness or transparency.
Investing With Eyes Wide Open
Robo-advisors offer convenience and efficiency, but they’re not exempt from the rules. In the EU, financial technology must serve the client—not the code. So if your robo-advisor is recommending products, you have the right to know how—and why—those decisions are made.
See more on European Union
Sources
ESMA Provides Guidance to Firms Using Artificial Intelligence in Investment Services
https://www.esma.europa.eu/press-news/esma-news/esma-provides-guidance-firms-using-artificial-intelligence-investment-services
30 May 2024
Artificial Intelligence Act – Shaping Europe’s Digital Future
https://digital-strategy.ec.europa.eu/en/policies/regulatory-framework-ai
2024