The Bank of England, the FCA and the Treasury have been accused of exposing the public and the financial system to potentially serious harm due to their current positions on the use of artificial intelligence (AI) in financial services.
In a new report published today the Treasury Select Committee said the institutions have not done enough to manage the risks presented by the increased use of AI in the financial services sector.
It said evidence it received showed that more than 75% of UK financial services firms are now using AI, with the largest take-up among insurers and international banks.
It said AI is being used by businesses in a variety of ways, including to automate administrative functions and to deliver core services such as processing insurance claims and credit assessments.
The Treasury Committee believes that action is needed to ensure that the use of AI is done safely.
One recommendation from the Committee is for the Bank of England and the FCA to conduct AI-specific stress-testing to boost businesses’ readiness for any future AI-driven market shock.
The Committee also recommended that the FCA should publish practical guidance on AI for firms by the end of this year. It said it should include how consumer protection rules apply to their use of AI as well as setting out a clearer explanation of who in those organisations should be accountable for harm caused through AI.
Dame Meg Hillier, chair of the Treasury Select Committee, said: “Firms are understandably eager to try and gain an edge by embracing new technology, and that’s particularly true in our financial services sector which must compete on the global stage.
“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.
“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. I want to see our public financial institutions take a more proactive approach to protecting us against that risk.”
The Critical Third Parties Regime was established to give the FCA and the Bank of England new powers of investigation and enforcement over non-financial firms which provide critical services to the UK financial services sector, including AI and cloud providers. The Government is responsible for deciding which firms are brought into this regime.
The Treasury Committee’s report noted that, despite being set up for more than a year, no organisations have yet been designated under the regime. The Committee said it urges the Government to designate AI and cloud providers deemed critical to the financial services sector in order to improve oversight and resilience.