UK FOS response to FCA on the long-term impact of AI on retail financial services

The UK Financial Ombudsman Service (FOS) has published its response (dated February) to the FCA's Mills Review on the long‑term impact of AI on retail financial services. The response focuses on two areas: the increasing use of AI by consumers and professional representatives in complaint submissions; and financial firms' use of AI.

The FOS observes an increase in consumers using AI, noting that AI can help consumers organise complaints, overcome language barriers and present clearer cases—especially consumers who are vulnerable and have difficulty expressing themselves in writing. However, there are also concerns where generative AI is used excessively or inaccurately, leading to lengthy, incoherent submissions and "hallucinations". The FOS reports early indications from a small sample analysis that AI may have contributed to around 35% of responses to initial assessments, which can lead to a disproportionate amount of time spent on verifying accuracy. The FOS welcomes the FCA's focus on AI in retail financial services and calls for consistent guidance to firms and consumers as AI use evolves in the complaint process, offering to provide its own insights to support this work.

The FOS also raises concerns about large scale AI generated submissions from professional representatives and confirms it shares relevant intelligence with the FCA and other regulators where conduct may cause consumer detriment or friction in the redress system, and will continue to do so.

In relation to financial firms' use of AI, the FOS notes that it is currently seeing very few complaints but highlights potential future risks as AI adoption increases. It is aware of growing consumer protection issues where individuals obtain financial "advice" from AI, particularly where this falls outside the FOS' remit and limits routes for redress. The FOS recognises the use of AI enabled tools by firms to improve efficiency but warns that rigid or opaque systems risk overlooking complex or non standard vulnerabilities. The FOS also supports transparency as AI use becomes more autonomous, calling for clear FCA expectations on firms' obligations to explain how AI contributed to decisions, how outcomes align with principles based requirements such as the consumer duty, as well as on record keeping, escalation and dispute handling where no human is involved, e.g., where a consumer's AI agent may interact directly with a firm's AI chatbot. The FOS will continue to monitor developments as AI adoption evolves.

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