UK Financial Conduct Authority warns of regulatory challenges in AI arms race

The UK’s top financial regulator just admitted what everyone in the industry already knew: the rulebook can’t keep up with AI. FCA CEO Nikhil Rathi used a techUK conference appearance on June 24 to lay out the scale of the problem, noting that over 80% of financial services firms are now deploying AI in some form. His message to the industry was blunt. Regulators need to act as “stewards” in a market that’s evolving faster than the frameworks designed to govern it.

The regulatory gap widens

The FCA has been adamant about one position: it does not want to create AI-specific regulations. Instead, it’s betting on its existing principles-based approach, leaning on frameworks like Consumer Duty and the Senior Managers and Certification Regime (SM&CR) to handle AI-related risks. Rather than writing new rules for every AI use case, the FCA wants firms to apply existing obligations around consumer protection and accountability to their AI deployments.

A report from the UK parliamentary Treasury Committee on January 20 took direct aim at the FCA and fellow regulators for what it called a “wait-and-see” approach. The committee recommended that updated consumer protection guidance specifically addressing AI be published before the end of 2026.

The FCA launched the Mills Review on January 27 to examine how AI is reshaping retail financial services. The review’s scope includes analyzing potential shifts in market power and risks like financial crime. The FCA has reiterated that it won’t be issuing AI-specific rules from its findings.

The cybersecurity arms race

A 2025 Bank of England report described a bidirectional “arms race” in AI-enhanced cyber capabilities. As financial institutions deploy AI to detect and prevent cyberattacks, bad actors deploy AI to make those attacks more sophisticated. The net effect on financial stability, the Bank concluded, remains uncertain.

The FCA published its first Emerging Technology Horizon Scan on June 10, highlighting how rapid technological convergence — AI meeting blockchain meeting cloud computing — is creating both opportunities and risks that demand ongoing oversight.

What this means for crypto investors and digital asset firms

The parliamentary pressure for updated guidance by the end of 2026 is worth watching closely. If the Treasury Committee gets its way, the UK could see its first meaningful set of AI-specific consumer protection guidelines before year-end. For crypto firms with UK operations or ambitions, that guidance could reshape compliance requirements around AI-driven services like automated advisory, fraud detection, and customer onboarding.

The Mills Review’s focus on shifts in market power is particularly relevant for digital assets, where AI-driven trading firms and large platforms can accumulate informational advantages that smaller participants cannot match. If the review’s findings point to concentration risks amplified by AI, regulatory responses could affect how crypto market makers, quantitative trading firms, and centralized exchanges operate in the UK.

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