UK Regulators Warn AI Poses “Potentially Serious Harm” to Financial System

UK financial authorities have warned that the growing use of AI across financial services could pose “potentially serious harm”  to consumers and the stability of the financial system if left insufficiently managed.

In a report drawing on evidence submitted to the Treasury Committee, MPs criticised the Bank of England, the Financial Conduct Authority (FCA) and the Treasury for adopting what they described as a wait-and-see approach to AI regulation. The Committee argued that this stance is inadequate at a time when AI adoption is accelerating rapidly across the sector.

More than 75% of UK financial services firms are now using some form of AI, according to evidence received by the Committee, with the highest levels of take-up among insurers and international banks.

While MPs acknowledged that AI and wider technological developments could deliver significant benefits for consumers, they stressed that clearer oversight is needed to ensure those benefits are realised safely.

The Committee urged closer collaboration between firms and regulators to help the UK capitalise on AI’s opportunities, but said stronger safeguards must be put in place.

Among its recommendations, it called on the Bank of England and the FCA to introduce AI-specific stress testing to assess firms’ resilience to potential AI-driven market shocks.

It also recommended that the FCA publish practical guidance on the use of AI by the end of this year. This guidance should clarify how existing consumer protection rules apply to AI-driven activities and set out clearer lines of accountability for harm caused by AI systems.

Despite the warnings, the government has signalled that it remains supportive of AI innovation in financial services as the Treasury has appointed Harriet Rees, Group Chief Information Officer at Starling Bank, and Dr Rohit Dhawan, Head of AI and Advanced Analytics at Lloyds Banking Group, as ‘AI Champions’,  tasked with helping firms safely adopt AI at scale.

Reporting directly to Economic Secretary to the Treasury Lucy Rigby, the pair will focus on accelerating safe adoption, identifying where innovation can move faster and addressing barriers holding firms back.

Their remit includes improving customer outcomes, boosting productivity and competitiveness, and maintaining trust, resilience and strong consumer protection, while reinforcing the UK’s position as a global hub for financial services and technology.