A UK parliamentary committee has warned that the rapid adoption of artificial intelligence across financial services is outpacing regulators' ability to manage risks to consumers and the financial system, raising concerns about accountability, oversight, and reliance on major technology providers.
“By taking a wait-and-see approach to AI in financial services, the three authorities are exposing consumers and the financial system to potentially serious harm,” the committee wrote.
AI is already embedded in core financial functions, the committee said, while oversight has not kept pace with the scale or opacity of those systems.
While noting that “AI and wider technological developments could bring considerable benefits to consumers,” the committee said regulators have failed to provide firms with clear expectations for how existing rules apply in practice.
Formal minutes are expected to be released later this week.
“To its credit, the UK got out ahead on fintech—the FCA's sandbox in 2015 was the first of its kind, and 57 countries have copied it since. London remains a powerhouse in fintech despite Brexit,” Dermot McGrath, co-founder at Shanghai-based strategy and growth studio ZenGen Labs, told Decrypt.
Yet while that approach “worked because regulators could see what firms were doing and step in when needed,” artificial intelligence “breaks that model completely,” McGrath said.
The technology is already widely used across UK finance. Still, many firms lack a clear understanding of the very systems they rely on, McGrath explained. This leaves regulators and companies to infer how long-standing fairness rules apply to opaque, model-driven decisions.
McGrath argues the larger concern is that unclear rules may hold back firms trying to deploy AI to an extent where “regulatory ambiguity stifles the firms doing it carefully.”
AI accountability becomes more complex when models are built by tech firms, adapted by third parties, and used by banks, leaving managers responsible for decisions they may struggle to explain, McGrath explained.
