What the FCA is Doing to Understand and Adapt to AI

FCA AI Update Breakdown - Feature Image

Following the government’s publication of A Pro-Innovation Approach to AI Regulation: Government Response and Implementing the UK’s AI Regulatory Principles: Initial Guidance for Regulators the FCA released its latest AI Update focusing on defining its role and strategy for overseeing AI usage within the market.

The update goes on to explain the FCA’s alignment with the Government’s Pro-innovation Strategy, likely Risk Management and Regulatory adaptations and how Operational Risk and Cyber Security need to be considered in the context of AI implementation.

More broadly, the FCA states that its focus is:

“…on how firms can safely and responsibly adopt the technology as well as understanding what impact AI innovations are having on consumers and markets.”


What the FCA has done so far in relation to AI innovation

Jointly with the Bank of England, the FCA has published the AI Discussion Paper (AI DP) (2022), the Feedback Statement (2023), the AI Public-Private Forum (AIPPF) Final Report (2022), and the 2019 & 2022 Machine Learning surveys.

However, the FCA’s involvement in AI does not simply stop at co-authoring industry papers and reports. The update informs us that the FCA has been an adopter of AI for some time, as shown by the following two extracts from the update:


“Our Advanced Analytics unit at the FCA is using AI to develop additional tools to protect consumers and markets. This unit has, among other things, developed tools to monitor scam websites as well as an in-house synthetic data tool for Sanctions Screening Testing that has transformed our assessment of firms’ sanctions name screening systems.”

Extract: Section 3.49 – FCA AI Update.

“Machine learning has been critical for us in our fight against online scams. We have developed tools that are able to detect, review and triage potential scam websites, which we use to proactively monitor and identify them. This work has resulted in an increase in firm warnings of 33.5% from 2021-2022 (1,410 in 2021 to 1882 in 2022), despite a decrease in the number of total reports received.”

Extract: Section 3.51 – FCA AI Update.


Clearly, AI is not just a driving force of the markets but it’s also changing the way regulation is monitored and enforced. The FCA already uses web scraping and social media tools that are able to detect, review and triage potential scam websites. They plan to invest more into these technologies to proactively monitor markets, including for market surveillance purposes. They are currently exploring potential further use cases involving Natural Language Processing to aid triage decisions, assessing AI to generate synthetic data or using large language models (LLMs) to analyse and summarise text.



FCA AI Update Breakdown

The FCA’s Role and AI Strategy:

The FCA outlines its role in ensuring the success and competitiveness of UK financial services, emphasising innovation and digitisation. It acknowledges the rapid advancements in AI and its potential to transform financial services for consumers and businesses.


Government’s Pro-Innovation Strategy:

The FCA supports the UK Government’s principles-based, sector-led approach to AI, focusing on safe and responsible adoption. The document references the Government’s strategy published in February, which the FCA aligns with.


Risk Management and Regulation Adaptation:

The FCA plans to understand AI deployment strategies within regulated firms to identify and mitigate risks. It discusses the need for modified approaches to firm risk management and governance due to AI’s complexity.


Operational Resilience and Cybersecurity:

The FCA emphasises the importance of operational resilience, cybersecurity, and data considerations in the context of AI. It mentions ongoing policy work on BigTech and regulatory frameworks for Critical Third Parties (CTPs).


International Cooperation and Standards:

The FCA values international cooperation on AI regulation and is actively involved in various global financial and innovation networks.


FCA’s Innovation Services:

The FCA highlights its innovation services like TechSprints, Regulatory Sandbox, and access to synthetic data to foster technological exploration.


FCA’s Use of AI:

The FCA is exploring AI for regulatory purposes, such as monitoring scams, money laundering, and sanctions breaches.


Future Plans:

The FCA intends to continue building an understanding of AI’s impact on financial markets and may consider future regulatory adaptations.

It plans to collaborate with domestic and international regulators, industry, and civil services to develop a framework for AI that is safe and pro-innovation.


The update provides a comprehensive view of the FCA’s current and future approach to AI, emphasising safety, innovation, and international collaboration. It communicates a proactive stance towards understanding and integrating AI within the UK’s financial regulatory framework.


To read the full FCA AI Update click here.



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