UK watchdog officials weigh AI regulation

FCA official Sheldon Mills called for an evolving approach to AI in finance.

The UK's Financial Conduct Authority (FCA) has published a review of AI’s role in investment decisions and consumer financial advice, mulling regulation for large language models such as ChatGPT, Claude, and Gemini.

According to a recent review on the long-term impact of AI on retail financial services, FCA executive director for consumers and competition Sheldon Mills argued that regulators should review whether general-purpose AI models require additional oversight as more consumers rely on the technology for financial guidance.

More than one in four UK consumers now trust AI tools for financial advice, despite those models operating outside the existing regulatory framework for financial services.

The comments reflect growing concern that AI is becoming embedded throughout the financial sector.

According to the FCA, 81% of financial firms globally are now using AI, with customer-facing applications expanding beyond back-office functions into areas including complaint handling, investment support, and financial guidance.

For investors, the debate extends beyond consumer protection.

Mills warned that increasing reliance on a small number of AI providers could create concentration risk across the financial system, potentially leading to correlated decision-making and operational vulnerabilities if widely used models experience failures or biases.

Both regulation and litigation focused on AI-related companies has accelerated drastically in recent months, with 37 lawsuits filed in the US so far this year, up from 7 the year before, and regulators across the globe proposing new frameworks. The ongoing focus may well be on which AI developers can build the most legally resilient businesses.

While the FCA is not proposing immediate regulation of AI developers, Mills argued that it should review the scale, nature, and impact of general-purpose models that currently sit outside the regulator’s focus over the next three to six months.

The review comes as policymakers globally grapple with how to regulate increasingly powerful foundation models without stifling innovation.

For financial institutions, any expansion of the FCA's remit could have significant implications for the deployment of AI-powered products and services.

Technology providers may also face greater scrutiny if regulators conclude that general-purpose models should be subject to sector-specific rules when used in financial markets.

Investors will now be watching whether the FCA launches a formal consultation on AI regulation and whether other financial regulators follow suit, potentially reshaping the governance of AI across the financial services industry.

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