UK Financial Conduct Authority calls for expanded powers to oversee AI risks in financial services

More than three-quarters of UK financial services firms are already using AI for core functions like claims processing and credit assessments. The regulators tasked with keeping those firms in check? Still workshopping their approach.

A Treasury Select Committee report released on January 20, 2026, delivers a pointed critique of how the Financial Conduct Authority, the Bank of England, and HM Treasury have handled the rise of artificial intelligence in finance. The verdict: the current strategy of watching and waiting risks serious consumer harm and potential systemic instability.

The gap between adoption and oversight

More than 75% of UK financial firms are already deploying AI across their operations, making lending decisions, processing insurance claims, and scoring creditworthiness.

To address this, the Committee recommends several concrete steps. It wants the FCA and Bank of England to implement AI-specific stress testing, essentially pressure-testing how financial institutions’ AI systems perform under adverse conditions. It also calls for the FCA to issue practical guidance on consumer protection and accountability by the end of 2026.

There’s also a push to urgently designate critical AI and cloud service providers under the Critical Third Parties Regime. If a handful of AI vendors are powering the risk models at dozens of banks, regulators want the authority to oversee those vendors directly, not just the banks using them.

The FCA’s measured resistance

As of September 2025, the FCA maintains it will not issue AI-specific regulations. Instead, it argues that existing frameworks, particularly the Consumer Duty and the Senior Managers and Certification Regime (SMCR), are flexible enough to cover AI-related risks.

The Consumer Duty requires firms to deliver good outcomes for retail customers. The SMCR makes senior individuals personally accountable for failures in areas they oversee.

The FCA has plans for an AI Lab, designed to help firms experiment with AI within a supervised environment. There’s also the Supercharged Sandbox initiative, an accelerated version of the regulatory sandbox concept that allows companies to test innovative products under relaxed rules.

The Mills Review was launched on January 27, 2026, tasked with assessing the long-term impacts of AI on retail financial services.

What this means for crypto and digital asset markets

The regulatory conversation around AI in financial services runs on a completely separate track from the UK’s approach to crypto asset oversight. These are distinct regulatory workstreams with different timelines, different stakeholders, and different legislative frameworks.

The stress-testing framework being proposed for AI could also serve as a template. If regulators develop the muscle to stress-test AI-driven credit models, applying similar rigor to algorithmic trading systems, DeFi protocols, or AI-powered crypto trading bots becomes a logical next step.

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