According to a new report by the UK Treasury Select Committee, the Bank of England (BOE), Financial Conduct Authority (FCA) and the Treasury are exposing the public and the financial system to serious harm due to their current positions on AI in financial services.
The report highlights potential harms to consumers including a lack of transparency in AI decision-making, AI financial decision-making threatening exclusion for disadvantaged consumers, unregulated financial advice from AI search engines such as ChatGPT and increased fraud.
The report has stated that by adopting what the Committee describes as a ‘wait-and-see’ approach, these major financial institutions, which are responsible for maintaining stability in the UK economy, are not doing enough to manage the risks presented by increasing use of AI in the financial sector.
Evidence received by the Committee has shown more than 75% of UK financial services firms are now using AI, with the largest uptake by insurers and international banks. AI is being used by businesses for a variety of functions, including delivering core services such as processing insurance claims and credit assessments.
The report acknowledges that wider technological benefits could bring benefits to consumers. Therefore the Committee has encouraged firms and the FCA to work together to ensure these opportunities are capitalised upon.
However, the Treasury Committee also believes that action is required to ensure this is done safely and has
provided recommendations.
One recommendation is for the BOE and FCA to conduct AI-specific stress-testing to improve businesses’ preparedness for any potential future AI-driven market shock. The Committee is also recommending the FCA publish practical guidance on AI for firms by the end of 2026. This guidance should include how consumer protection rules apply to their use of AI in addition to setting out a clearer explanation of who is accountable for harm caused in those organisations.
The Critical Third Parties Regime was established to give the FCA and BOE new investigation and enforcement powers over non-financial firms which provide critical services to the UK financial services sector, including AI and cloud service providers. The Government is responsible for deciding which firms are part of this regime. Despite it being set up for more than a year, the report highlights that no organisations have yet been designated under the regime. The Committee has strongly encouraged the government to designate AI and cloud providers deemed critical to the financial services sector to improve oversight and resilience.
