The current regulatory framework governing artificial intelligence (AI) in financial services does not need to be replaced.
This is according to the Mills review led by Financial Conduct Authority executive director Sheldon Mills, which launched at the start of the year.
Today’s findings identify four major AI‑driven shifts likely to affect retail financial services.
These include the transformation of firm operations; the evolution of consumer journeys; the reshaping of competition and market power; and the amplification of fraud and cyber risks.
The report also outlines seven recommendations for the FCA board and its executive to consider including securing and adapting the regulatory perimeter.
But it also found that regulatory foundations remain sound where AI supports human decisions.
AI changing the game
“The framework was designed for human-intermediated financial services where decisions made by people, approved by people, with clear lines of accountability to named individuals,” Mill said. “AI changes this.”
Mills maintained that as autonomy develops, the way the current regulatory framework applies is not uniform.
“In some regimes, particularly the senior managers regime and Consumer Duty, existing arrangements continue to operate effectively where human control remains central,” he said.
Framework is sound
Mills concludes that the overall regulatory framework remains sound.
“Its principles and outcomes-based approach, including the Consumer Duty, senior managers regime (SMR), operational resilience and other key features, was, designed to flex across changing business models,” he said.
“Engagement respondents did not seek changes to this system. They wanted clarity on how to interpret and govern increasing use of AI within the existing regime.
“We expect the FCA can provide this regularly through its supervisory, enforcement, authorisation and its ground-breaking Scale-up Unit and AI Lab.”
Consumer appetite
The report also found there is already consumer appetite for the use of agentic AI in personal finance.
Research commissioned by the FCA indicates that a fifth of people – equivalent to 11 million UK adults – are likely to use AI that can act autonomously within pre-set goals. But consumers in the survey are concerned about trust and control of AI.
The review concluded that AI is likely to become a defining force in retail financial services.
The review found that it will transform how firms operate, how consumers make financial decisions and how markets function.
And while AI has the potential to improve access, personalisation and efficiency, it could also amplify risks associated with fraud, cyber security, consumer harm and market concentration.
Key recommendations
It outlined seven recommendations for the FCA board and its executive to consider.
- Secure and adapt the regulatory perimeter.
- Strengthen system-wide co-ordination and oversight.
- Monitor the transition to autonomous models and adapt regulatory frameworks.
- Scale up the FCA’s AI Lab to support AI models and system innovation in financial services.
- Enable the foundations for agentic finance.
- Build and adopt an AI-enabled agentic supervisory model.
- Develop a trusted public-interest AI-enabled financial capability service.
Mills said: “Artificial intelligence will transform financial services by 2030. It creates significant opportunities for consumers, firms and the wider economy. This report sets out a roadmap for how industry regulators and government can prepare for the next phase of AI-driven change in our world-leading financial services sector.”
Keeping pace with change
Ashley Alder, chairman of the FCA, added: ‘The board is enormously grateful to Sheldon for the rich, comprehensive report he’s delivered. His work anticipates the fundamental change agentic AI will bring to financial services. It highlights how consumers and firms can reap significant potential benefits as well how risks can be managed.
‘As is clear in the report, we need to keep pace with a rapidly changing environment and the principles-based, outcomes focussed approach we’ve taken on AI – relying on the Consumer Duty and Senior Managers Regime – has been critical to us doing so.
“The recommendations build on work the FCA has been doing – not least allowing firms to test their use of AI with us – and our own use of AI to be a smarter regulator, more efficient and effective.”