FCA calls for stricter AI oversight

The Financial Conduct Authority (FCA) has called for tighter oversight of AI in financial services, having warned that the technology will significantly impact retail finance over the next decade. The report suggests expanding the FCA’s regulatory scope and creating a public-interest AI financial guidance service.

The FCA found that a fifth of people are open to using AI to make their financial decisions, including on savings and borrowing, despite the fact that AI models are not scrutinised by financial regulators. While 13% of people would be willing to give AI real-time access to banking and financial data, 24% said nothing would persuade them to use AI in financial services.

The review concludes that AI is likely to become a defining force in retail financial services, transforming how firms operate, how consumers make financial decisions and how markets function. While AI has the potential to improve access, personalisation and efficiency, it could also amplify risks associated with fraud, cyber security, consumer harm and market concentration.

Executive director Sheldon Mills said: “Artificial intelligence will transform financial services by 2030. It creates significant opportunities for consumers, firms and the wider economy. This report sets out a roadmap for how industry regulators and government can prepare for the next phase of AI-driven change in our world-leading financial services sector.”

Ashley Alder, Chair of the FCA, said: “The Board is enormously grateful to Sheldon for the rich, comprehensive report he’s delivered. His work anticipates the fundamental change agentic AI will bring to financial services. It highlights how consumers and firms can reap significant potential benefits as well as how risks can be managed.

“As is clear in the report, we need to keep pace with a rapidly changing environment and the principles-based, outcomes-focused approach we’ve taken on AI – relying on the Consumer Duty and Senior Managers Regime – has been critical to us doing so. The recommendations build on work the FCA has been doing – not least allowing firms to test their use of AI with us – and our own use of AI to be a smarter regulator, more efficient and effective.”

Shanika Amarasekara MBE, FLA Chief Executive, said “AI is reshaping consumer finance faster than many people realise. It’s changing how people search, compare and make financial decisions, and the Mills Review rightly recognises that we are moving towards a world where financial support is more personalised, continuous and, in some cases, delegated.
“For lenders and finance providers, the prize is enormous. AI can make borrowing simpler, improve fraud detection, identify financial difficulties earlier and deliver better outcomes for customers. But innovation will only succeed if people trust it. Customers need to understand when AI is being used, have confidence that decisions are fair and transparent, and remain in control.

“Getting the next phase right matters far beyond financial services. Finance & Leasing Association members provide £163 billion of new lending every year, financing the real economy by helping millions of consumers make essential purchases and enabling businesses across the UK to invest, grow and create jobs. Responsible adoption of AI can make finance faster, more efficient and more accessible.

“The challenge now is to strike the right balance. Firms need a policy environment that gives them the confidence to innovate and invest responsibly, while ensuring consumers remain protected. Policymakers should also consider the growing influence of AI tools operating outside the regulated financial sector. As more people turn to AI to help make financial decisions, the rules must evolve to ensure trust, fair competition and innovation continue to work hand in hand.”
The Review also outlines seven recommendations for the FCA Board and Executive to consider:

1. 1. Secure and adapt the regulatory perimeter.
   2. Strengthen system-wide coordination and oversight.
   3. Monitor the transition to autonomous models and adapt regulatory frameworks.
   4. Scale up the FCA’s AI Lab to support AI models and system innovation in financial services.
   5. Enable the foundations for agentic finance.
   6. Build and adopt an AI-enabled agentic supervisory model.
   7. Develop a trusted public-interest AI-enabled financial capability service.