Offering AI Investment Tools: A Regulated Activity?

Artificial intelligence (AI) or, more specifically, large language models (LLM) are no longer just on the rise, but have already arrived in many areas of business and private life. The use of chatbots and other AI applications is increasingly becoming part of everyday life. A chatbot can now answer questions that previously required extensive Google searches and visits to many different websites, including maneuvering annoying cookie banners and often a flood of unwanted advertising, in just a few seconds. The added value of web searches by chatbots for users cannot be denied. It is therefore no surprise that trust in and the desire for AI-supported tools is increasing in more and more areas of life. One possible use of AI/LLMs may be to use them to assist in investment decisions. Recently, ESMA also felt compelled to publish a warning about the risks of using AI in financial investments. This was also published on the BaFin website on March 28, 2025. According to BaFin, consumers should be particularly careful when buy and/or sell signals are artificially generated. AI tools and apps could provide tips or recommendations that may be inaccurate or misleading. Those who invest based on them risk significant financial losses. AI tools and apps are neither authorized nor supervised by financial regulators. This notice once again provides reason to examine the previous classification of providers of automated software-based investment services and, in this context, to examine under which conditions providers of dedicated AI investment tools require a license from BaFin.

The So-Called Robo-Advice

BaFin has been dealing with the topic of automated distribution of financial instruments and similar digital offers for quite some time. In an article from the 2017 annual report, BaFin already summarizes these under the term robo-advice and states that such advice generally meets the legal definition of investment advice or financial portfolio management and therefore requires a license under banking or commercial law. In a later article from 2020, BaFin reiterated its view that robo-advice can be legally classified as investment advice, financial portfolio management, acquisition brokerage or investment brokerage in an article entitled “Robo-Advice – Automated Investment Advice and Financial Portfolio Management”. In its 2022 information notice “Automatisierte und signalbezogene Beratungs- und Handelssysteme” (Automated and Signal-Based Advisory and Trading Systems), BaFin once again emphasized that a conclusive regulatory assessment is only possible if BaFin is provided with the contractual agreements between the provider and its customers in individual cases. Liability for robo-advice has also been addressed in case law. In a judgment dated May 30, 2018 – 12 U 95/16 – the Higher Regional Court of Hamm ruled that in the case of automated online trading in financial products, proprietary trading (which does not require a license) is deemed to have taken place by the person “who decides on the fundamental settings and specifications of the software”. The court stated that the decisive factor is not who actually makes the settings or where the software is installed (on the customer’s hardware or in the cloud). The court regards the main criterion as being who made the “decisive specifications” in the relationship between the parties. In the legal literature, it has been argued, among other things, that in the case of software with abstractly defined trading algorithms, the software provider has no discretion. The user is responsible for the use of the software. The decisive factor is which contractual partner can ultimately decide on its use or non-use (usually the user). Therefore, automated portfolio management should at least not be subject to authorization as financial portfolio management.

What are the Arguments For and Against Requiring Permission for Providers of AI Investment Tools?

First of all, it must be noted that the judgment of the Higher Regional Court of Hamm cannot be applied across the board to all robo-advisers and AI investment tools, since it is based on a case in which the investor himself actually provided essential specifications for the software. Furthermore, investors require the same level of protection with AI systems as they would with advice or management from a human. The mere power of disposition of the investor (activation/deactivation) does not change the lack of predictability of the AI decisions. LLMs are characterized precisely by the fact that they do not merely follow predefined algorithms. Without predictability for the investor, an investment decision should not be attributable to the investor. If an investor uses an ordinary AI chatbot and asks it for help with investment decisions, it is unlikely that the provider of this chatbot can be said to be performing an activity that requires a license. The situation could be different if AI-supported software is explicitly offered that automatically manages the investor’s portfolio and makes buy and sell decisions for the investor. Providers of AI investment tools should therefore check in each individual case whether their own application includes activities that require a license. If necessary, the business model should be adapted to avoid authorization requirements or to obtain a license. Consideration could also be given to cooperating with market participants who already have the necessary authorizations. After analyzing one’s own business model, an inquiry should first be made to BaFin to clarify one’s own intentions before the AI investment tool is offered to investors in Germany.

Attorney Anton Schröder

I.  https://fin-law.de

E. info@fin-law.de

The lawyer responsible for questions relating to AI Investment Tools, Robo-Adviser and IT law at our law firm is Attorney Lutz Auffenberg LL.M. (London) with assistance of Attorney Anton Schröder.