AI in financial services: a turning point for regulators and firms

What happened?

The UK Parliament’s Treasury Committee has published its report on Artificial Intelligence in Financial Services, finding that more than three-quarters of firms are now using AI, particularly in insurance claims processing and credit assessments. Commenting on the report, Joe Norburn, CEO of TCC Group, said it delivers “a stark warning to regulators and firms”.

The Committee concluded that a “wait-and-see” regulatory stance is no longer sufficient. It recommends that the Bank of England and the Financial Conduct Authority provide practical guidance on how existing rules apply to AI by the end of 2026, strengthen accountability under the Senior Managers and Certification Regime, and introduce AI-specific stress testing. It also urges HM Treasury to bring major AI and cloud providers into the Critical Third Parties regime.

Evidence submitted to MPs pointed to a lack of transparency in AI-driven decisions, the risk of excluding vulnerable customers, rising fraud, and unregulated advice from AI chatbots as areas of particular concern.

Why does it matter?

Norburn said the report exposes “a growing tension inside firms”: AI is evolving quickly and is often embedded deep within operational processes, while regulatory expectations remain fragmented and, in places, ambiguous.

Without decisive action, the Committee warns that AI-driven decision-making risks amplifying bias, weakening consumer protection and creating new sources of systemic shock. Where accountability for AI outcomes is unclear, responsibility can fall through the gaps between teams and functions.

The Committee’s recommendations mark a shift from AI being treated primarily as an innovation opportunity to being treated as a conduct and operational resilience issue in its own right.

Who is affected?

The findings are relevant to firms across banking, lending and consumer credit, wealth management and financial advice, pensions and retirement income, payments and fintech, general insurance and protection, and motor finance, wherever AI is used in credit decisions, insurance claims, customer service or advice-related processes.

Senior managers with responsibility for AI systems under the Senior Managers and Certification Regime are directly affected by the Committee’s call for clearer accountability.

Key risks

• Opaque, hard-to-explain AI decision-making in credit, insurance and customer service
• Potential exclusion of vulnerable consumers from products or fair treatment
• Increased fraud enabled by AI tools
• Unregulated advice or guidance generated by AI chatbots
• Concentration risk from reliance on a small number of AI and cloud providers

Actions to take

1. Review current AI use across credit, insurance, customer service and advice processes against existing regulatory expectations.
2. Clarify and document accountability for AI-related outcomes under the Senior Managers and Certification Regime.
3. Strengthen governance frameworks so that transparency and consumer protection are built in before AI systems are deployed, not added afterwards.
4. Assess exposure to AI and cloud providers ahead of possible inclusion in the Critical Third Parties regime.

Wider implications

The Committee’s recommendations point towards firmer, more specific regulatory guidance from the Bank of England and the FCA by the end of 2026, rather than continued reliance on existing, more general rules.

Bringing major AI and cloud providers within the Critical Third Parties regime would extend direct regulatory scrutiny beyond regulated firms themselves to the infrastructure many of them depend on.

Recommendations

Firms that strengthen governance frameworks, clarify accountability for AI outcomes, and align with emerging regulatory expectations now will be better placed as the Committee’s recommendations take effect.

Thoughtful implementation, supported by clear oversight, allows firms to pursue the efficiency benefits of AI while protecting consumers and market integrity.