01-23-2026 
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The United Kingdom’s regulators are exposing the public and the financial system to “serious harm” through their current approach to artificial intelligence (AI), according to a new report by a Parliamentary Committee.
On January 20, the Treasury Select Committee published its report on “Artificial intelligence in financial services,” which found that “by adopting a wait-and-see approach, the major public financial institutions, which are responsible for protecting consumers and maintaining stability in the UK economy, are not doing enough to manage the risks presented by the increased use of AI in the financial services sector.”
The Treasury Select Committee is the Parliamentary Committee appointed by the House of Commons—the U.K.’s lower House of Parliament—to examine the expenditure, administration, and policy of HM Treasury, HM Revenue & Customs, and associated public bodies, including the Bank of England (BoE) and the Financial Conduct Authority (FCA).
According to evidence received by the Committee, more than 75% of U.K. financial services firms now use AI, with the largest uptake among insurers and international banks.
While the Members of Parliament (MPs) who make up the Committee acknowledged that AI and broader technological developments could bring considerable benefits to consumers, they expressed concerns that current oversight of the technology’s application was not up to the challenge posed by its widespread use.
As such, the Committee recommended that the BoE and FCA conduct “AI-specific stress-testing” to boost businesses’ readiness for future AI-driven market shocks, such as a possible bursting of the much-talked-about “AI-bubble.”
The report also recommended that the FCA— the U.K.’s top finance sector regulator—publish practical guidance on AI for firms by the end of this year. This should include how consumer protection rules apply to their use of AI, as well as a clearer explanation of who within those organizations should be accountable for harm caused by AI.
“The use of AI in the City has quickly become widespread and it is the responsibility of the Bank of England, the FCA and the Government to ensure the safety mechanisms within the system keeps pace,” Chair of the Treasury Select Committee, Dame Meg Hillier, said. “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.”
She added that “I want to see our public financial institutions take a more proactive approach to protecting us against that risk.”Another major complaint in the report concerned the ‘Critical Third Parties Regime,’ established in 2023 to give the FCA and the BoE new powers of investigation and enforcement over non-financial firms that provide critical services to the U.K. financial services sector, including AI and cloud providers.
The government is responsible for deciding which firms are brought into this regime. However, the report lamented that, despite being set up for more than a year, no organizations have yet been designated under the regime.
Thus, the Committee urged the government to designate AI and cloud providers deemed critical to the financial services sector by the end of 2026 to improve oversight and resilience.
The report concluded by reiterating that “AI and wider technological developments could bring considerable benefits to consumers… However, the Financial Conduct Authority, the Bank of England and HM Treasury are not doing enough to manage the risks presented by AI.”
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