UK consumers and the financial system are being exposed to “serious harm” because the government and key regulators have failed to adequately address the risks posed by artificial intelligence, according to a new report from the treasury committee. The cross-party group of MPs criticises ministers, the Bank of England and the Financial Conduct Authority for adopting a “wait-and-see” approach to Artificial Intelligence use across the financial sector, despite growing concerns about how the technology could disadvantage vulnerable customers or even help trigger a financial crisis. The report argues that it is the responsibility of authorities to ensure safety mechanisms keep pace with the rapid deployment of Artificial Intelligence in core financial operations.
The committee highlights that more than 75% of City firms now use Artificial Intelligence, with insurers and international banks among the biggest adopters, and that it is being deployed to automate administrative work and handle core tasks such as processing insurance claims and assessing credit-worthiness. However, the UK has failed to develop any specific laws or regulations to govern the use of Artificial Intelligence, with the Financial Conduct Authority and Bank of England insisting existing general rules are sufficient, leaving firms to interpret how current guidelines apply. MPs warn that this patchwork approach could put consumers and financial stability at risk, fuel a lack of transparency in decision making, and leave it unclear whether data providers, technology developers or financial institutions are responsible when things go wrong.
The report also says Artificial Intelligence raises the likelihood of fraud and the spread of unregulated and misleading financial advice, while increasing cybersecurity vulnerabilities and concentrating reliance on a small number of United States technology providers for critical services. It warns that widespread use of similar Artificial Intelligence systems could amplify herd behaviour during economic shocks, “risking a financial crisis”. In response, MPs urge regulators to introduce new stress tests to gauge the City’s resilience to Artificial Intelligence-driven market shocks and press the Financial Conduct Authority to publish “practical guidance” by the end of the year, clarifying how consumer protection rules apply and who is accountable if harm occurs. The Financial Conduct Authority, Treasury and Bank of England all say they will consider the findings, with officials insisting they are working to balance managing Artificial Intelligence risks with unlocking its potential and to strengthen oversight as the technology evolves.
