AI REGULATIONS
The financial system bet on AI before stress-testing it
A parliamentary committee has warned that delays in managing AI risks could expose consumers and the UK financial system to serious harm.
In a new report, MPs criticised the government, the Bank of England, and regulators such as the Financial Conduct Authority for taking a “wait-and-see” approach to AI in financial services, despite its rapid adoption across the sector.
More than 75% of City firms now use AI, particularly insurers and international banks. It is commonly used to automate admin work, process insurance claims, and assess creditworthiness.
However, the UK has not introduced AI-specific financial rules.
Instead, firms are expected to interpret how existing regulations apply, which MPs say could put consumers and financial stability at risk.
The report points to a lack of transparency in AI-driven decisions, which could disadvantage vulnerable customers seeking loans or insurance.
It also raises questions over accountability if things go wrong, and warns that AI could increase fraud and the spread of misleading financial advice.
Three things to note:
AI is widely used in UK finance, but regulation has not kept pace.
MPs are concerned about consumer harm, accountability gaps, and system-wide risks.
Regulators are under pressure to introduce clearer guidance and stress testing.
Stress tests, please
MPs also flagged wider risks to the system, including higher cybersecurity threats and growing reliance on a small number of US tech providers, such as Google.
They warned that similar AI models across firms could lead to “herd behaviour” during economic shocks, increasing the risk of market disruption.
The committee is calling for faster action, including AI-focused stress tests and clearer FCA guidance on how consumer protection rules apply to AI use.
Regulators said they are already assessing AI risks and will respond formally to the report.
Everyone’s using AI in finance, but no one’s in charge. That feels… concerning. - MG