The FCA's AI Work
- Robert Bell
- 2 days ago
- 3 min read
Artificial Intelligence is now a strategic issue for the financial regulator. Over the past decade, the question has quickly gone from ‘whether AI will affect financial services’ to how ‘should regulation evolve as AI becomes embedded into modern life’.
The FCA’s work over the past two years demonstrates an important shift. Rather than creating an AI-specific rulebook, the regulator is building a supervisory framework that aims to enable innovation while keeping firms accountable on outcomes. The approach reflects both the FCA’s outcomes based regulatory framework and the recognition that AI is evolving far faster than legislation and the rulebooks can keep up.
Recent statements indicate focus on:
Governance of AI models
Consumer outcomes from AI-driven decisions
Use of AI in financial promotions
Operational resilience implications
Regulatory use of AI by the FCA itself
For firms, the key message is: AI is a board-level issue.
The FCA positions itself as an innovation-friendly regulator. Through initiatives including the AI Lab, the AI Consortium, Digital Sandbox and more recently the Supercharged Sandbox, it encourages firms to explore AI use cases while engaging directly with supervisors. These initiatives are designed not only to foster innovation, but also to help the FCA itself to understand emerging risks.
That collaborative approach has culminated in the publication of the Mills Review, an assessment of how AI could reshape retail financial services over the remainder of the decade. Rather than focusing solely on generative AI applications, the review considers a future in which increasingly autonomous or “agentic” AI makes decisions, interacts with customers and undertakes financial transactions with limited human intervention. This shows the FCA is moving beyond asking how firms use AI today and is now focusing on what financial services could look like when AI becomes an active participant in markets.
The AI balancing act
The FCA’s approach is seemingly attempting to solve two competing objectives at the same time. On one hand, it recognises AI as a potential driver of productivity, competition and financial inclusion. Better fraud detection, more personalised customer journeys, improved compliance monitoring and more efficient advice models all offer clear benefits in light of the Consumer Duty.
On the other hand, AI introduces risks that traditional financial regulation as it currently stands cannot address. In particular, hallucinations would undoubtedly lead to poor customer outcomes, cybersecurity vulnerabilities would increase, and there would be reduced transparency where firms themselves cannot fully explain model outputs.
The FCA has repeatedly emphasised that innovation cannot come at the expense of consumer protection or market integrity. Existing obligations, including the Consumer Duty, continue to apply irrespective of whether decisions are made by humans or AI.
FCA AI Regulation
Unlike the EU’s AI Act, in the UK there is no horizontal AI legislation for financial services. Instead, the FCA has consistently argued that existing regulatory principles provide a robust foundation while supervisory expectations evolve alongside technological capabilities.
However, this should not be mistaken for regulatory light-touch. Instead, the direction of travel suggests increasing supervisory scrutiny around AI rather than prescriptive rules.
Boards should expect regulators to ask questions such as:
· Who is accountable for AI-enabled decisions?
· Can customer outcomes be evidenced?
· Are models appropriately tested and monitored?
· How are third-party AI providers governed?
· What happens when AI fails?
· Is there meaningful human oversight where required?
The FCA’s recent work suggests that we are entering a new phase of AI regulation. The initial focus on experimentation and innovation is switching to questions of governance, accountability and market resilience. Recent speeches and the Mills Review indicate that the FCA is actively considering whether aspects of today’s framework remain sufficient as AI systems increasingly influence consumer financial decisions.
For firms, the message is that competitive advantage will not come from deploying AI faster than competitors. It will come from using AI in ways that boards, regulators and customers can trust.
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