‘Collaboration becomes ever more important’ as FCA prepares AI guidance

In a blog published on Monday, Alex Smith, the FCA's head of cross-cutting policy and strategy, said the regulator is engaging with firms on governance, model testing, customer outcomes and explainability as AI adoption expands across financial services.

"As the pace of AI development in UK financial services accelerates, collaboration with the industry becomes ever more important. Our AI good and poor practice publication, to be published later in the year, needs to be grounded in the latest examples of industry practices and answer the most urgent questions," said Dr Henrike Mueller, AI strategy team manager at the FCA and lead for its AI Live Testing initiative, in a LinkedIn post sharing the blog.

The regulator said it is discussing a range of practical issues with firms, including how they oversee AI systems, monitor outcomes, explain AI-driven decisions and ensure fair treatment of customers, particularly those with characteristics of vulnerability.

"We have been clear that we are not going to introduce new regulations for AI," Smith wrote in the blog post. "Instead, we will rely on existing frameworks, including the Consumer Duty, the Senior Managers and Certification Regime (SM&CR), and our expectations on governance and controls.

"We will share good and poor practice later this year on questions like these to better support firms in adopting AI safely and responsibly and as we see AI technology develop.”

Industry engagement expands

To support that work, the FCA has launched an online survey called the AI Input Zone, which will remain open until 19 June and is intended to gather feedback from firms and other stakeholders on AI use cases, implementation challenges and emerging risks.

"We want industry to tell us what is working well, where firms are facing challenges, and where further clarity would help," Smith said. "This helps us build an evidence-led view of AI in financial services."

The survey forms part of the FCA's broader AI Lab programme, which is designed to deepen the regulator's understanding of the risks and opportunities AI presents to UK consumers and financial markets.

The initiative includes the Supercharged Sandbox, which provides access to high-performance computing, enriched datasets and advanced AI tools, and AI Live Testing, which allows firms to test AI systems in real-world conditions with regulatory support and oversight.

The FCA has also launched AI Spotlight, a programme designed to showcase how firms are experimenting with artificial intelligence in financial services, alongside targeted events focused on the challenges smaller firms face when adopting the technology.

The FCA's plans to publish examples of good and poor practice on AI governance and controls follow a similar approach taken in other supervisory areas.

Last month, the regulator published examples of good and poor practice identified during a review of sanctions systems and controls at more than 150 firms, highlighting weaknesses in due diligence, alert management, transaction screening and sanctions compliance processes while also identifying examples of effective controls that helped firms prevent potential breaches.

The AI initiative also forms part of a broader programme examining the impact of emerging technologies on UK financial markets. Last month, the FCA and Bank of England launched a consultation on wholesale tokenisation and outlined their approach to areas including tokenised collateral, settlement instruments and prudential treatment.

"Tokenisation has the potential to transform wholesale markets, reshaping how assets are issued, traded and settled. We want to support firms in adopting this technology to lower costs, reduce risk and unlock new services," said Simon Walls, executive director of markets at the FCA, in a release at the time. "Partnership with the Bank of England will ensure a common approach across all parts of wholesale markets."

The regulators on Friday reviewed supervisory arrangements across financial market infrastructure, concluding that cooperation between the FCA and Bank of England remained effective, with "appropriate coordination and no material duplication" as they oversee areas including tokenisation initiatives, the Digital Securities Sandbox and the UK's transition to T+1 settlement.