The UK's City regulator is facing mounting pressure from ministers to boost its powers in safeguarding consumers against the growing risks posed by artificial intelligence. A major review led by FCA executive director Sheldon Mills has highlighted the need for stronger oversight as AI transforms the financial services sector, making it increasingly difficult for regulators to keep pace.
The 'Mills review' examined how AI is set to revolutionise finance from 2030 onwards, with companies already shifting towards AI-enabled services that cater to everyday consumers. While acknowledging AI's potential to improve accessibility and tailor financial advice for lower-income households, the report also warned of a heightened risk of fraud, cyber threats, and broader consumer harm.
The FCA notes that AI will become a defining force in retail financial services, altering how firms operate, how consumers make financial decisions, and how markets function. While it offers opportunities for improved access, personalisation, and efficiency, it could also amplify existing risks related to fraud, cybersecurity, consumer harm, and market concentration.
The report suggests the FCA should adopt AI-enabled models for supervising firms and recommends that the government bolster its current powers. This could involve extending jurisdiction over 'critical third parties' such as AI firms and cloud providers, granting direct regulatory powers over technology companies, and preventing digital monopolies that stifle competition.
The review found that approximately 11 million people – a fifth of the UK population – are open to using AI for financial decisions, including savings and borrowing. This willingness exists despite the lack of regulatory scrutiny for AI models and the absence of compensation for consumers who might incur losses due to AI-related malfunctions or errors.
The report also recommends launching another review within six months to investigate potential harm to consumers using AI for personal finances and examining risks posed by unregulated companies offering financial services with AI. These operations often fall outside the FCA's traditional remit, highlighting the need for enhanced regulatory powers to keep pace with emerging technologies.