The UK’s financial sector is rapidly embracing artificial intelligence (AI), with over 75% of City firms now using the technology. However, a damning report from the influential Treasury Committee warns that the government, Bank of England, and Financial Conduct Authority (FCA) are failing to adequately address the risks posed by this burgeoning AI use.
The parliamentary committee’s report criticises regulators for taking a “wait-and-see” approach, despite growing concerns that AI could disadvantage vulnerable consumers or even trigger a financial crisis. Insurers and international banks are among the biggest adopters of AI, using it to automate tasks and assess customer creditworthiness.
Yet the UK has failed to develop specific laws or regulations to govern the use of AI in finance. The FCA and Bank of England claim that existing guidelines are sufficient, leaving businesses to determine how these apply to AI. This, the report warns, could put consumers and financial stability at risk.
“It is the responsibility of the Bank of England, the FCA and the government to ensure the safety mechanisms within the system keep pace,” said Meg Hillier, chair of the Treasury Committee. “Based on the evidence I’ve seen, I do not feel confident that our financial system is prepared if there was a major AI-related incident and that is worrying.”
The report flags a lack of transparency around how AI could influence financial decisions, potentially affecting vulnerable consumers’ access to loans or insurance. It also warns that AI increases the likelihood of fraud and the spread of unregulated financial advice.
In terms of financial stability, the MPs found that rising AI use heightens firms’ cybersecurity risks and leaves them overly reliant on a small number of US tech companies. AI’s uptake could also amplify “herd behaviour”, with businesses making similar financial decisions during economic shocks and “risking a financial crisis”.
The Treasury Committee is now urging regulators to take action, including launching new stress tests to assess the City’s readiness for AI-driven market shocks. MPs also want the FCA to provide “practical guidance” by the end of the year, clarifying how consumer protection rules apply to AI use and who would be held accountable if consumers suffer harm.
“By taking a wait-and-see approach to AI in financial services, the three authorities are exposing consumers and the financial system to potentially serious harm,” the report concluded.
The FCA said it had already undertaken “extensive work” to ensure firms use AI safely, but would review the committee’s findings. The Treasury and Bank of England both pledged to strengthen their approach as the technology evolves.