| Link(s): | Current approach to AI in financial services risks serious harm to consumers and wider system – Committees – UK Parliament Artificial intelligence in financial services AI in financial services |
Context
The UK Parliament Treasury Select Committee report says that the Bank of England, the Financial Conduct Authority (FCA) and the Treasury are exposing the public and the financial system to potentially serious harm due to their current positions on the use of artificial intelligence in financial services. Its view is that by adopting a wait-and-see approach, the major public financial institutions, responsible for protecting consumers and maintaining stability in the UK economy, are not doing enough to manage the risks presented by the increased use of AI in the financial services sector.
Key points to note and next actions
- According to evidence received by the Committee, more than 75% of UK financial services firms are now using AI, with the largest take-up among insurers and international banks. AI is being used in various ways, including to automate administrative functions, to deliver core services such as processing insurance claims and credit assessments.
- In the report, MPs acknowledge that AI and wider technological developments could bring benefits to consumers. The Committee, therefore, encourages firms and the FCA to work together to ensure the UK capitalises on AI’s opportunities. However, the Treasury Committee believes action is needed to ensure that this is done safely. One recommendation is for the Bank of England and the FCA to conduct AI-specific stress-testing to boost businesses’ readiness for any future AI-driven market shock.
- The Treasury Committee is also recommending the FCA should publish practical guidance on AI for firms by the end of this year. This should include how consumer protection rules apply to their use of AI as well as providing a clearer explanation of who in those organisations should be accountable for harm caused through AI.
- The Critical Third Parties Regime gives the FCA and the Bank of England new powers of investigation and enforcement over non-financial firms which provide critical services to the UK financial services sector, including AI and cloud providers. The Government is responsible for deciding which firms are brought into this regime.
- The report notes that, despite being set up for more than a year, no organisations have yet been designated under the regime. The Committee urges the Government to designate AI and cloud providers deemed critical to the financial services sector in order to improve oversight and resilience.