FCA opens review of future of AI across UK financial sector

The Financial Conduct Authority will look to explore how AI will impact on regulation, markets and consumers – alongside a separate exploration already underway into the impact on wholesale markets.

The exercise, to be led by FCA executive director Sheldon Mills, will focus on four areas, including how AI systems could evolve in the future, and how those developments would affect markets and firms – including competitiveness of the UK regime and market structural changes.

It will also explore what impact AI would have on consumers – both directly and how it would influence financial markets – and what regulatory changes may be needed to ensure financial markets continue to work well.

“AI is already shaping financial services, but its longer-term effects may be more far-reaching,” said Mills.

“This review will consider how emerging uses of AI could influence consumers, markets and firms, looking towards 2030 and beyond.

“By taking a forward-looking view, the review will help the FCA continue to support innovation while promoting the safe and trusted adoption of AI in retail financial services.”

The Mills review comes after the FCA said last year it would not be introducing bespoke rules to govern how financial services firms in the UK should use AI.

“For companies in the financial services industry, the review will offer an opportunity to look at their relationship with AI – both in terms of inputting to the consultation, and in reviewing how they engage with the emerging technological impacts in their own businesses,” said David Heffron, a financial services regulatory expert with Pinsent Masons in London.

“We are already seeing concrete examples of deployment of AI in the financial services sector including in payments automation, customer service and fraud detection. Legal, risk and compliance teams will need to ensure that they keep ahead of the governance challenges. In standing up an AI governance program, firms can draw from familiar regulatory principles such as clear management accountability, operational resilience, data protection and a focus on customer outcomes.

“However, this needs to be done as part of a holistic, multi-stakeholder approach to ensure that risks in this rapidly developing area – both in terms of the technology and the regulation - are understood and mitigated.”

Feedback from the consultation, which runs until 24 February, will be used to shape recommendations for the FCA board this summer on how the regulator can guide and respond to AI-driven changes to the financial markets. This will culminate in an external publication.