UK Watchdog Flags Risks as AI Chatbots Influence Financial Decisions

The UK's Financial Conduct Authority (FCA) has been advised to consider regulating large language models such as ChatGPT, Claude, and Gemini due to their growing influence on consumer financial decisions. A review commissioned by the FCA and published on Monday found that more than a quarter of UK consumers trust these AI tools for financial advice, with limited awareness that regulatory protections do not extend to them.

Sheldon Mills, the FCA's executive director, highlighted that companies' reliance on a handful of technology providers introduces potential system-wide risks. The review also noted that while financial advice is a regulated activity, personal recommendations by chatbots could blur boundaries and continuous, adaptive recommendations may start to resemble regulated advice.

Mills recommended that the FCA consider within the next three to six months whether to 'secure and adapt' the regulatory perimeter by reviewing the scale, nature, and impact of AI models that sit outside it. Jonathan Herbst, global head of financial services at law firm Norton Rose Fulbright, said Mills was not proposing an immediate crackdown but was asking whether rules need to evolve to reflect how financial services are being delivered. 'That’s a big question for policymakers and one that will only become more pressing as AI adoption accelerates,' Herbst said.

The FCA stated it was the first regulator globally to study the impact of AI on financial services, though it is not bound to act on any recommendations made. A recent survey found that 81% of financial firms globally are adopting AI at some level, with 40% at more advanced stages. While most use cases remain in lower-risk back-office functions, UK companies are increasingly deploying AI in customer-facing roles such as complaints handling and investment guidance.

Mills' review warned that widespread adoption of AI could leave firms dependent on a small number of technology providers for critical operational capabilities. Shared reliance on the same models, cloud providers, or technology infrastructure could create correlated behaviour, herding, and common points of failure across the financial system.

In a speech last week, Bank of England deputy governor Sarah Breeden signalled the need for bespoke AI regulation to contain risks from increasingly capable agentic systems. 'Our frameworks were not built to contemplate autonomous agents, and relying on a human in the loop for all agent actions is unlikely to be realistic,' Breeden said.