UK financial services regulators are taking action to reduce the risks posed by the use of artificial intelligence (AI) in the finance sector.
The Bank of England and the Financial Conduct Authority (FCA) have both agreed to take steps following criticism in a report from MPs on the Treasury Committee that was published in January.
Committee chair Meg Hillier MP said that although the Bank of England is “grasping the nettle to some extent”, she was “perplexed at the apparent inertia shown by the Treasury” over placing IT suppliers to the finance sector within the Critical Third Parties Regime (CTPR).
In the report, MPs on the Treasury Committee said: “The UK public and the country’s finance system are exposed to potential serious harm because regulators in the financial sector are not doing enough.” MPs described the regulators as taking a “wait-and-see approach”.
In response, Sarah Breeden, deputy governor of financial stability at the Bank of England, said: “We share the [committee’s] view that AI has broad, complex and likely long-term implications for how the UK financial system serves the real economy. However, we do not agree with [its] characterisation that the bank is taking a ‘wait-and-see’ approach to the use of AI in financial services.
“Far from taking a ‘wait-and-see’ approach, we have invested heavily in analysing the current and future risks posed by both the use of AI in financial services, and the broader investment in and adoption of AI across the wider economy,” added Breedon.
Financial regulators respond to Treasury report
The Bank of England has confirmed plans to test the use of AI agents in financial trading markets to investigate the potential impact of AI agents demonstrating correlated behaviour, known as herding.
Also responding to the committee report, the FCA said: “We recognise that AI is unique in the foundational change it is driving at pace. That’s why our approach has steered away from traditional methods of rules and guidance because that is what the groundbreaking nature of this technology demands.”
The FCA confirmed that it will share examples of best practice for AI usage with financial services firms in line with recommendations that the sector needs clearer guidance on aligning AI with existing rules.
Hillier said: “Recent developments in the world of AI, such as Anthropic’s Project Mythos, show us how fast this transformative technology is moving. It has never been more important that those responsible for maintaining the UK’s financial stability to take a proactive approach to understanding and mitigating the risks AI may pose to our financial system. “
This week, major UK banks entered discussions with regulators as well as finance and national security organisations as the latest Anthropic AI model, named Mythos, unearthed decades-old vulnerabilities.
Hillier also emphasised the importance that major IT suppliers to the finance sector be designated within the CTPR. “The disruption which could be caused to our financial services system by an outage at a major provider could be extremely damaging. The powers offered by the CTPR are sitting unused while we remain vulnerable. I simply cannot understand why this is taking so long. We will continue to monitor this situation closely.”
Lucy Rigby MP, economic secretary to the Treasury, said the government department “is in the process of gathering the necessary evidence to support decision-making in relation to a number of potential designations, and I expect to make initial designation decisions this year”.
