The UK’s top financial authorities have been cautioned that the national financial system remains vulnerable to an AI-driven shock, following a sharp warning from the Treasury Select Committee.
According to City AM, a new assessment from MPs claimed that the Treasury, the Bank of England and the Financial Conduct Authority (FCA) have underestimated the threats posed by rapid AI adoption across the sector.
During a recent committee session, concerns were levelled at the FCA after its chief data, information and intelligence officer argued that the current regulatory framework already provides “enough regulatory bite that we don’t need to write new rules for AI”. MPs rejected this stance, concluding that “the three authorities are exposing consumers and the financial system to potentially serious harm”. Their findings point to a widening gap between the scale of AI deployment in financial services and the limitations of the existing supervisory framework.
Writing in City AM, Treasury Select Committee Chair Dame Meg Hillier reinforced the committee’s concerns. The warning comes at a time when financial institutions are rapidly integrating AI into both customer-facing and operational environments. Banks have embraced AI to optimise internal workflows, enhance fraud monitoring and cut costs amid intensifying competition, but this acceleration has also heightened systemic and consumer-level risks.
Major UK lenders are investing heavily in advanced automation and analytics through dedicated AI units. NatWest, Lloyds and HSBC now rank within the top 20 firms on the global Evident AI Index, a benchmark that measures the extent of AI maturity across the banking industry. While the index highlights their progress, it also underscores the need for stronger oversight as AI systems become increasingly embedded within core financial infrastructure.
The committee’s findings suggest that without targeted regulatory enhancements, the UK may face heightened exposure to emerging risks such as model drift, opaque decision-making, cybersecurity vulnerabilities and unintended bias affecting consumers. As AI adoption continues to accelerate, expectations are growing for regulators to reassess their supervisory approach to ensure safety, resilience and accountability across the financial system.
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