A senior official at the UK’s Financial Conduct Authority (FCA) has warned of an emerging “arms race” between the rapid adoption of artificial intelligence in financial services and the regulator’s ability to keep pace, as millions of consumers now use AI-powered tools for personal finance decisions. Speaking at a conference in London on Tuesday, the FCA’s executive director of consumers and competition, Sheldon Mills, made the case for granting the watchdog greater powers to oversee AI deployment across banks, insurers, and investment firms.
Mills said the regulator is facing an “accelerating challenge” as financial institutions deploy AI across customer service chatbots, credit scoring, fraud detection, and automated investment advice. The FCA estimates that more than 10 million UK adults now use AI-driven financial tools, a figure it expects to grow sharply over the next two years.
Regulatory gaps and consumer risks
Mills highlighted several areas where existing rules may not adequately cover AI-specific risks. These include the potential for algorithmic bias in lending decisions, lack of transparency in AI-driven pricing, and the difficulty of holding automated systems accountable when they make errors.
“The pace of technological change is outstripping our current toolkit,” Mills told the audience. “We need to ensure that consumer protection, market integrity, and competition are not undermined by a race to adopt AI without adequate safeguards.”
Also read: Chamath Palihapitiya raises $135M Series A for AI coding startup 8090 Labs, steps in as CEO
The FCA is not seeking to ban AI but to create a regulatory framework that can adapt quickly. Mills proposed new powers to require firms to explain how their AI models make decisions, to audit algorithms for fairness, and to impose fines for systems that cause consumer harm.
Industry reaction and the path ahead
The financial services industry has responded with caution. UK Finance, the trade body for the banking and financial services sector, acknowledged the need for clear rules but warned against overly prescriptive regulation that could stifle innovation. “We support a principles-based approach that allows firms to innovate while protecting consumers,” a UK Finance spokesperson said.
The FCA plans to publish a consultation paper later this year outlining specific proposals for AI governance. The outcome could shape how the UK positions itself as a global hub for fintech while maintaining consumer trust.
The warning from the FCA comes as the European Union moves forward with its AI Act, which classifies financial AI applications as high-risk and imposes strict requirements. The UK, having left the EU, is charting its own regulatory path, which Mills said must be “agile and proportionate.”
Frequently Asked Questions
Why is the FCA concerned about AI in financial services?
The FCA is concerned that the rapid adoption of AI by financial firms, including for customer service and investment advice, could outpace existing regulations, creating risks for consumers and market stability.
What specific powers is the FCA seeking?
The FCA is seeking greater powers to monitor and enforce AI governance, including the ability to audit algorithms, require transparency in AI decision-making, and impose penalties for non-compliance.
How are consumers using AI for personal finance?
Millions of consumers are using AI-powered tools for budgeting apps, robo-advisors for investments, automated savings, and chatbots for customer service, which the FCA says creates new data privacy and fairness challenges.
What is the ‘arms race’ analogy referring to?
The ‘arms race’ refers to the competitive dynamic between financial firms deploying increasingly sophisticated AI and regulators struggling to develop and enforce rules fast enough to keep up with the technology’s capabilities.
