Published by Global Banking & Finance Review®
Posted on January 20, 2026
3 min readLast updated: January 20, 2026
Add as preferred source on GoogleUK lawmakers recommend AI stress tests for financial services to mitigate risks and protect consumers. The FCA and BoE are urged to provide guidance.
LONDON, Jan 20 (Reuters) - Britain’s financial watchdogs are not doing enough to stop artificial intelligence from harming consumers or destabilising markets, a cross‑party group of lawmakers said on Tuesday, urging regulators to move away from what it called a “wait and see” approach.
In a report on AI in financial services, the Treasury Committee said the Financial Conduct Authority and the Bank of England should start running AI‑specific stress tests to help firms prepare for market shocks triggered by automated systems.
The committee also called on the FCA to publish detailed guidance by the end of 2026 on how consumer protection rules apply to AI, and on the extent to which senior managers should be expected to understand the systems they oversee.
“Based on the evidence I've seen, I do not feel confident that our financial system is prepared if there was a major AI-related incident and that is worrying,” committee chair Meg Hillier said in a statement.
TECHNOLOGY CARRIES 'SIGNIFICANT RISKS'
A race among banks to adopt agentic AI, which unlike generative AI can make decisions and take autonomous action, runs new risks for retail customers, the FCA told Reuters late last year.
About three‑quarters of UK financial firms now use AI. Companies are deploying the technology across core functions, from processing insurance claims to performing credit assessments.
While the report acknowledged the benefits of AI, it warned the technology also carried “significant risks” including opaque credit decisions, the potential exclusion of vulnerable consumers through algorithmic tailoring, fraud, and the spread of unregulated financial advice through AI chatbots.
Experts contributing to the report also highlighted threats to financial stability, pointing to the reliance on a small group of U.S. tech giants for AI and cloud services. Some also noted that AI‑driven trading systems may amplify herding behaviour in markets, risking a financial crisis in a worst-case scenario.
An FCA spokesperson said the regulator welcomed the focus on AI and would review the report. The regulator has previously indicated it does not favour AI‑specific rules due to the pace of technological change.
The BoE did not respond to a request for comment.
Hillier told Reuters that increasingly sophisticated forms of generative AI were influencing financial decisions. “If something has gone wrong in the system, that could have a very big impact on the consumer,” she said.
Separately, Britain's finance ministry appointed Starling Bank CIO Harriet Rees and Lloyds Banking Group ’s Rohit Dhawan as “AI Champions” to help steer AI adoption in financial services.
(Reporting by Phoebe Seers; Editing by Tommy Reggiori Wilkes)
Artificial Intelligence (AI) refers to the simulation of human intelligence in machines programmed to think and learn like humans. AI is used in various applications, including financial services, to enhance decision-making and efficiency.
AI stress tests are evaluations conducted to assess how AI systems in financial services respond to extreme conditions or market shocks. They help identify potential risks and ensure that firms are prepared for unexpected events.
Consumer protection in finance refers to laws and regulations designed to safeguard consumers from unfair practices in financial transactions, ensuring transparency, fairness, and accountability from financial institutions.
Risk management is the process of identifying, assessing, and controlling threats to an organization's capital and earnings. In finance, it involves strategies to minimize potential losses from various risks.
The Financial Conduct Authority (FCA) is a regulatory body in the UK responsible for overseeing financial markets and firms, ensuring consumer protection, and maintaining the integrity of the financial system.
Explore more articles in the Finance category
