U.K. Watchdog Seeks to Regulate AI Models as Consumers Turn to ChatGPT, Claude for Financial Advice
In Focus
- FCA report showed over 25% of U.K. consumers trust AI tools for financial advice
- Safeguards that apply to regulated financial services do not extend to AI platforms
- The FCA says the U.K. needs to adapt current rules to address emerging AI risks
Financial watchdog in the U.K has recommended regulation of AI models amidst their growing influence in the financial services sector. The Financial Conduct Authority (FCA) highlighted the need to adapt current rules as companies increasingly depend on a small number of technology providers. According to the regulator, this dependence creates potential risks across the broader financial system.
Why is the FCA Considering AI Regulation?
FCA Executive Director Sheldon Mills said the regulator may need expanded powers to keep up with the rapid rise of AI. He urged British authorities to assess whether tools like ChatGPT, Claude, Gemini and other large language models should fall under existing regulatory rules.
An assessment by the FCA showed that over 25% of U.K. consumers trust AI tools like ChatGPT, Gemini, and Claude for financial advice. Users rely on these tools for such advice unaware that safeguards that apply to regulated financial services do not extend to the AI platforms.
According to Mills, financial regulators need to embrace AI to keep up with the “speed, pace, and scale of change” that the technology brings to the sector and to detect risks. FCA’s assessment report highlights the benefits and risks emerging from the use of AI in the financial services sector.
“Hyper-personalisation could help better match products to needs, but also enable bias, opaque pricing and personalised manipulation,” the report states as cited by the Financial Times.
What Risks Do AI Models Pose in the Financial Sector?
FCA’s assessment report of the impact of AI on the financial sector comes at a time when regulators globally are grappling with emerging risks. These risks include operational and cyber threats linked to advanced AI models such as Anthropic’s Mythos.
Globally, regulators have also expressed concerns over agentic systems that can operate with minimal human intervention. Last year, the FCA warned that adoption of agentic AI by British banks could create new risks for customers due to their ability to make decisions and act on their own.
According to Mills, the FCA needs to assess whether to “secure and adapt” its regulatory perimeter within the next three to six months. This includes reviewing the scale, nature and impact of general-purpose AI models that currently fall outside its scope.
“We need to keep pace with a rapidly changing environment and the principles-based, outcomes focussed approach we’ve taken on AI,” FCA Chair, Ashley Alder noted.
The call for AI regulation in the U.K’s financial sector comes months after the U.K. issued a frontier AI guidance to companies in regulated sectors, including the financial services industry.
State of AI Deployment in the Financial Sector
Recently, a survey found that 81% of financial firms worldwide are using AI in some capacity. About 40% of these firms are in advanced stages of deployment. Although AI is mainly used for lower-risk back-office operations, firms in the U.K. are increasingly applying the technology to customer-facing services such as complaint handling and investment guidance.
