Israel Securities Authority regulates use of chatbots on financial platforms

The artificial intelligence revolution is also alive and well in the Israeli capital market. The Israel Securities Authority allows financial institutions to use chatbots on their platforms to provide financial analyses to customers, but imposes clear rules and important restrictions on their use.

How do chatbots make financial analyses accessible?

The idea is simple – a user types in a question about a specific company and the chatbot provides answers that it extracts from the full analysis found on the platform, but without additional processing or personalization.

Background: earlier regulation of the presentation of financial analyses on financial entities’ platforms

In February 2022, in response to a preliminary request, the Israel Securities Authority (ISA) ruled that financial entities, such as TASE members or institutional entities, may present financial analyses on their platforms that are prepared by external licensed consultants. The presentation of these analyses will not be considered investment advice on behalf of the financial institution itself, provided that the entities conduct themselves transparently, prudentially and with fiduciary responsibility by taking no personal interest in or interfering with, the content of the analyses.

The ISA’s position on the use of chatbots to provide financial analyses

Subsequently, in response to a later request it received in early 2024, the ISA examined financial entities’ use of AI-based chatbots to provide information to their customers from financial analyses after logging in to their personal accounts on financial entities’ platforms.

The ISA replied that it would not interfere in the manner by which analyses are being made accessible, provided that the financial entities conduct themselves transparently, prudentially and with fiduciary responsibility and uphold key principles:

• General and uniform information – the information that the chatbot provides must not create an expectation of information that has been personalized for the user, but must rather remain general and uniform information for all users.
• No filtering or further processing – the information that the chatbot provides must be identical to that appearing in the full analysis, without filtering, further processing, or emphases that could be interpreted as investment advice.
• User-initiated queries only – chatbots are only allowed to provide answers to users’ proactive queries, without any use of push notifications that might influence users’ decision-making concerningthe profitability of an investment.

Another restriction: users must have access to full analyses

In August 2024, another request was submitted to the ISA to allow financial entities to use chatbots to provide financial analyses to their customers, without their having access to the full analysis report on the platform. The ISA rejected this request and reiterated that making information accessible solely through the chatbot – without enabling customers to peruse the full analysis – could cause customers to think that they are receiving personal advice and not merely access to general information. Therefore, the ISA ruled that use of chatbots without enabling customers’ full access to analysis reports may constitute a deviation from the positions and conditions presented in previous requests.

In summary: what should financial entities do?

The ISA accepts the use of AI tools in the financial sector, but clarifies that financial entities implementing these technologies must emphasize that the chatbot service is presented solely as general information. If the use of chatbots or other AI tools gives users the impression that they are receiving personal investment advice, then this could be deemed provision of investment advice that requires a license, in conformity with the Investment Advice Law.

Therefore, financial institutions wanting to include chatbots or AI-based tools in their services should ensure that they comply with the ISA’s position and should carefully examine the possible regulatory implications.

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Adv. Andrey Yanai is a partner in the firm’s regulation department. 

Adv. Avihai Tal is an associate in the firm’s Capital Markets department.