With AI developments moving ‘dramatically faster’ than the frameworks governing it, the FCA is having to make changes of its own, according to chief executive Nikhil Rathi.
In a speech at a TechUK event on AI in financial services this week, Mr Rathi noted that over 80% of financial services firms were already using AI, leaving the FCA rethinking what it means to be an effective regulator.
He said: “Technology is moving much faster than many regulatory paradigms. Legislation will never keep up.That is one reason the FCA’s Strategy is built around rebalancing risk. We are re-thinking what it means to be an effective regulator in the age of AI: How we supervise, gather intelligence, collaborate, and innovate.”
Mr Rathi said that in some areas, “traditional rule-making simply wont work anymore” and that he sees the FCA’s stewardship role growing beyond supervision. He said the regulator wanted to work more collaboratively and creatively to understand emerging risks.
He added that AI also changes how the regulator thinks about competion.
He said: “AI lowers barriers to entry and creates opportunities for challengers to establish at speed. We welcome that.
“Our role is not to protect incumbents, but to ensure competition works as it should – in the interests of consumers and the economy.
“Some firms may fall behind the pace, while others rapidly rise. A transition that might feel bumpy at times, but we will remain focused on market integrity as things unfold. And as markets move faster, our competition objective and system-wide powers become vastly more important.
“We should expect to use these system-wide powers more frequently – not as exceptional interventions, but as a regular part of our toolkit.”
The regulator is currently ‘exploring’ agentic AI for use as a ‘first responder’ to speed up how it monitors wholesale markets and tackle market abuse faster.
The regulator expects to share its review setting out how AI could re-shape retail financial services next month, followed by a publication on good and poor AI practice later this year.