Boost City regulator’s powers to help protect UK consumers from AI, says watchdog

Ministers have been urged to toughen the City regulator’s powers to protect consumers against the potential risks of AI, according to a landmark review.

The Mills review by the Financial Conduct Authority (FCA), which looked at how AI will reshape financial services from 2030 onward, found that companies are already starting to shift from human-led activities towards AI-enabled services for everyday consumers.

It found the move could support customers and make financial advice more accessible to lower-income households, but it also increased the risk of fraud, cyber threats and harm to consumers.

“AI is likely to become a defining force in retail financial services, transforming how firms operate, how consumers make financial decisions and how markets function,” the FCA said. “While AI has the potential to improve access, personalisation and efficiency, it could also amplify risks associated with fraud, cybersecurity, consumer harm and market concentration.”

The report, which was led by one of the FCA’s executive directors, Sheldon Mills, made a series of recommendations, including having the watchdog adopt its own AI-enabled model to supervise firms and asking the government to boost its existing powers.

That could mean expanding its authority over “critical third parties”, such as AI firms and cloud providers and giving it “direct powers” to regulate tech companies to prevent digital monopolies, boost competition and protect consumers.

Mills told the Financial Times that regulators needed to embrace AI internally to keep up with the speed, pace and scale of change, to “monitor, detect and tackle the risks”. “It is an arms race,” he said.

“Artificial intelligence will transform financial services by 2030,” he said in a statement. “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.”

The review was announced in January as part of efforts to understand how AI could evolve in the future, how those developments could affect consumers, markets and firms, and how financial regulators may need to evolve in response.

The FCA found that a fifth of people across the UK, equivalent to 11 million people – are open to using AI to make their financial decisions, including on savings and borrowing. That is despite the fact that AI models are not scrutinised by financial regulators and that consumers will not be compensated if they lose money.

Mills’ report recommends the FCA launch another review within six months, looking at the potential harm consumers who are using AI to manage their personal finances face. He also said the review should look at the risk posed by companies providing unregulated financial services with the help of AI technologies, given that their everyday operations tend to fall outside the regulator’s responsibilities and remit.

The review has been taking place amid a growing debate over the handling of a powerful AI model developed by Anthropic. The US tech firm said the model, known as Mythos, was a serious potential threat to any organisation’s cybersecurity and started metering out its use to vetted firms, which included some UK banks.

There have been fears that having Mythos fall into the wrong hands could wreak havoc on banks and potentially put the wider financial system at risk. Use of Mythos by US firms was halted last month by Donald Trump’s administration, before being partially restored last week.

The FCA will now deliberate on how to respond to the Mills review’s recommendations.