Regulators are in an “arms race” to keep up with the use of artificial intelligence in financial services, a senior UK official has warned, with millions of people using the technology to help them make personal finance decisions.
Sheldon Mills, an executive director at the Financial Conduct Authority, told the FT the watchdog would need greater powers to stay on top of the rapid growth of AI and urged UK authorities to review whether the use of ChatGPT, Claude, Gemini, and other large language models should be subject to their rules.
Speaking ahead of the publication on Monday of an FCA-commissioned report he has written on the impact of AI in financial services, Mills said regulators in the area would have to embrace AI themselves to keep up with the “speed, pace, and scale of change” the technology is bringing to the sector and to help “monitor, detect, and tackle the risks.”
“It is an arms race,” he added.
Mills’ report identifies benefits and risks from increasing use of AI in financial services. “Hyper-personalization could help better match products to needs, but also enable bias, opaque pricing, and personalized manipulation,” it says, according to a summary seen by the FT.
It recommends the FCA carries out a review in the next three to six months to examine the risks of companies providing financial services outside the remit of the regulator as well as “consumer harm” from the increasingly popular use of AI models for managing people’s personal finances.
Research commissioned by Mills found a fifth of UK adults were already open to using AI models to make financial decisions for them, such as on savings or borrowing, even though they are not covered by regulation and there is no recourse to compensation if things go wrong.
“Some firms have said to us that they feel that this could be an economically equivalent type of service that isn’t regulated [and] sits outside of the regulatory perimeter,” he said, pointing out there were “reasonably strict” rules for regulated companies giving similar recommendations.