The Treasury Select Committee alerts that FCA, BoE, and HM Treasury have lagged behind AI adoption, leaving clients at risk of unfair or opaque financial decisions.
The regulators in the U.K. Are being counseled that their current approach to artificial intelligence in financial services might also expose consumers to severe harm, as loopholes in law expands when AI is taking off more hastily in the industry.
The Treasury Select Committee has issued this warning, pronouncing the Bank of England, the Financial Conduct Authority, and HM Treasury have been highly-dependent on a wait-and-see approach whilst AI is already in the heart of financial decision-making.
In a report posted on January 20, the committee stated the tempo of AI adoption has surpassed the regulators’ capacity to control its risks.
About 75% of financial services corporations within the UK are recently using AI, with the most severe adoption amongst insurers and main global banks.
Although MPs accepted that AI is able to improve efficiency, hastens consumer services, and improve cyber defenses, they completed that all that is being compromised by means of unaddressed risks to both consumers and financial stability.
Lawmakers stated UK’s AI Approach in Finance Is Too Reactive
Recently, there’s no specific AI rules for financial services in the UK. Instead of, regulators use pre-current regulations and declare they’re flexible sufficient to consist of new technologies.
The FCA has pointed to the Consumer Duty and the Senior Managers and Certification Regime as offering sufficient protection, even as the Bank of England has stated its position is to respond when issues arise instead of regulate AI earlier.
The committee rejected this function, announcing it places an excessive amount of responsibility on corporations to interpret complicated policies on their own.
AI-driven decisions in credit and insurance are often opaque, making it tough for customers to recognize or challenge outcomes.
Automated product altering could deepen financial exclusion, in particular for vulnerable groups. Unregulated financial advice formed by AI tools risks deceptive customers, while the use of AI by criminals could increase fraud.
The committee stated those troubles aren’t hypothetical and need more than tracking after the fact.
Regulators have taken a few steps, together with the creation of an AI Consortium and voluntary testing schemes consisting of the FCA’s AI Live Testing and Supercharged Sandbox.
However, MPs stated those initiatives attain only a small number of firms and do not offer the clarity the wider market needs.
Industry individuals advised the committee that the recent approach is reactive, leaving companies uncertain about accountability, specially when AI systems behave in unpredictable ways.
AI Risks Increase as UK Regulators Lag on Testing and Oversight
The report also increased worries about financial balance, as AI should increase cyber risks, concentrate operational dependence on a small number of US-based cloud providers, and intensify herding behavior in markets.
In spite of this, neither the FCA nor the Bank of England recently runs AI-precise stress tests. Members of the Bank’s Financial Policy Committee stated such testing will be treasured, however no timetable has been set.
Reliance on third-party technology providers was another target.
Although Parliament formed the Critical Third Parties Regime in 2023 to offer regulators oversight of firms supplying vital services, no essential AI or cloud provider has yet been designated.
This put off persists despite high-profile outages, along with an Amazon Web Services disruption in October 2025 that affected major UK banks.
The committee stated the slow rollout of the regime leaves the financial system exposed.
The findings land as the United Kingdom maintains to promote a pro-development, principles-based AI strategy geared toward assisting increase at the same time as averting heavy-handed regulation.
The government has backed this stance by initiatives such as the AI Opportunities Action Plan and the AI Safety Institute.
However, MPs said ambition must be matched with action.
