FCA recommends expanded powers to boost financial services AI regulation

Stronger powers could be needed to regulate the use of AI in financial services as consumers flock to the technology for advice, according to the Financial Conduct Authority (FCA).

Following an investigation into the technology and its impact on consumer finance activities, the regulator has recommended a formal review into how to regulate the use of general-purpose LLMs across the industry.

The FCA report – known as the Mills Review after its author – noted that companies and consumers are increasingly delegating decisions about finances to AI and AI-powered systems.

A survey by the regulator found that one-in-five adults were already open to the idea of general-purpose AI tools – such as Claude, ChatGPT, or Gemini – making financial decisions on their behalf, in particular around debt advice, pensions, and investments.

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While that could help reduce existing challenges such as "advice gaps" and friction around switching services, the FCA warned about risks including fraud and scams, as well as disrupting market structure and competition.

"AI offers a once-in-a-generation chance to close the information asymmetries and frictions that have long left people making poor financial decisions," said FCA executive director and report author Sheldon Mills in the forward to the review.

"The right spur, in retail financial services, is ensuring consumers can make healthy ones; regulation, whether supportive or restrictive, should serve that outcome."

The FCA noted that many consumers may not be aware that they have no formal recourse if something goes wrong, and said some assume they receive equal protection akin to traditional sources of advice.

Emma Banymandhub, CEO of The Payments Association, agreed that the gap in understanding could cause issues and urged caution on the part of consumers.

"Consumers may be increasingly comfortable using AI agents for routine tasks such as weekly shopping, but AI-driven savings and investment decisions present a very different set of challenges," Banymandhub commented.

"While AI can increasingly explain investment concepts and analyse financial information, personalised investment recommendations remain subject to important regulatory constraints."

AI gains traction in financial services

The financial services sector has rapidly emerged as one of the key growth spaces in terms of the use of AI, with a host of major providers across the UK ramping up adoption of the technology.

As ITPro previously reported, high street lenders such as Nationwide, Lloyds Banking Group, and Yorkshire Building Society have all made significant strides on this front over the last six months.

A parliamentary inquiry into the use of AI in financial services, published in January 2026, found that the sector “substantially outpaces” others with regard to AI adoption.

Indeed, around 75% of UK-based financial services firms are now using the technology, with insurers and large banks among the most aggressive in their pursuit of AI adoption.

Running parallel to this, the use of AI by consumers is also surging, according to research from Lloyds Banking Group. The firm’s 2025 Consumer Digital Index found that AI has “rapidly become a financial tool for millions across the UK".

56% of adults – equivalent to around 28 million people – revealed they’d used AI over the preceding 12 months for financial advice. ChatGPT, for example, was referenced as the most popular platform in this regard, used by six-in-10 consumers.

What the Mills Review recommends

With this in mind, the Mills Review recommended that the existing "regulatory perimeter" needs to be secured and adapted to take in AI's impact on retail financial services – and that should come via a review within the next six months into how AI is affecting the market.

"The review should examine how consumers use AI including general purpose LLM tools for personal financial management across savings, investments, pensions, mortgages and debt management, and the implications for competition, innovation and growth," the Mills Review said.

"It should examine the risks of consumer harm, including how far its usage has or will move along the autonomy spectrum, and any impacts on market integrity and the potential for regulatory arbitrage."

Based on that review's guidance, the FCA could tweak regulation as necessary, the report said. Beyond that, the review called for the FCA to monitor for evidence of harm and new consumer models, engage with providers for better insight into changes, and be ready with intervention tools and mechanisms as necessary.

Frontier model monitoring in finance

In the longer term, the Mills Review called for the FCA to keep an eye on frontier model capabilities and AI adoption, considering its impact on its regulatory work, in particular where use of AI falls outside of existing protections and once AI agents start taking more action on behalf of consumers.

The review also called for stronger powers for the FCA so it can look at these issues more widely.

"As is clear in the report, we need to keep pace with a rapidly changing environment and the principles-based, outcomes focussed approach we’ve taken on AI – relying on the Consumer Duty and Senior Managers Regime – has been critical to us doing so," said Ashley Alder, chair of the FCA.

"The recommendations build on work the FCA has been doing – not least allowing firms to test their use of AI with us – and our own use of AI to be a smarter regulator, more efficient and effective."

Banymandhub added that walking that balance between enabling AI and protecting consumers and companies was key.

"The FCA’s Mills Review reinforces that firms should treat agentic AI as an accountability and governance issue now, while providing greater confidence to innovate responsibly as AI adoption accelerates," she said.

"AI has enormous potential for financial services, but realising that potential will depend on strong governance, clear accountability and maintaining consumer trust."

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