UK Treasury Committee report expresses concern over current approach to AI in financial services

The UK Treasury Select Committee has published a report on AI in financial services. The report expresses concerns that the Bank of England, the UK Financial Conduct Authority (FCA) and HM Treasury (HMT) are exposing consumers and the wider financial system to potentially serious harm by maintaining a “wait‑and‑see” approach to AI in financial services. With over 75% of UK financial services firms now using AI, particularly insurers and international banks, the Committee acknowledges the potential benefits to consumers but concludes that regulators are not doing enough to mitigate emerging risks.

The report recommends that: (i) the Bank of England and the FCA undertake AI‑specific stress testing to build firms’ readiness for AI-driven market shocks; (ii) the FCA publishes comprehensive practical AI guidance for firms by year‑end covering: (a) how existing consumer protection rules apply to their use of AI and (b) accountability and the level of assurance expected from senior managers under the Senior Managers and Certification Regime for harm caused through the use of AI; and (iii) by year-end, HMT must designate the major AI and cloud providers as critical third parties for the purposes of the Critical Third Parties Regime. The Committee states it is unclear why HMT has been slow to use the new powers at its disposal, noting that the regime was established over a year ago. It further recommends that the Bank of England’s Financial Policy Committee should monitor the regime’s progress and, if needed, use its power of recommendation to HMT to ensure swift implementation.

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