UK Financial Conduct Authority released guidance on AI risks in financial services, raising capital adequacy concerns for AI lending platforms.

Britain's financial regulator is urging consideration of regulation for large language models such as ChatGPT, Claude, and Gemini due to their growing influence on consumer financial decisions. In a review commissioned by the Financial Conduct Authority and published Monday, the watchdog's executive director, Sheldon Mills, also highlighted how companies' reliance on a handful of technology providers introduces potential system-wide risks.

Regulators globally have begun focusing more closely on the impact of AI, from cyber and operational risks associated with frontier AI models such as Anthropic's Mythos to the challenges posed by agentic systems capable of acting with limited human intervention.

Mills' review found that more than a quarter of UK consumers trust tools such as ChatGPT, Claude, and Gemini for financial advice, with only limited awareness that protections applied to regulated financial services do not extend to those AI services. Financial advice is a regulated activity that can only be provided by authorized businesses, so AI should not offer more than generic financial guidance. However, Mills warned that personal recommendations by a chatbot could blur this boundary, 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 Norton Rose Fulbright, noted that Mills was not proposing an immediate crackdown but 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 said it was the first regulator globally to study the impact of AI on financial services, though the watchdog is not bound to act on any recommendations. A recent survey found that 81% of financial firms globally were adopting AI at some level, with 40% at more advanced stages. While most use cases remain concentrated in lower-risk back-office functions, British companies are increasingly deploying AI in customer-facing roles such as complaints handling and investment guidance.

Mills' review warned that widespread AI adoption 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 behavior, herding, and common points of failure across the financial system.

Bank of England deputy governor Sarah Breeden signaled last week the need for bespoke AI regulation to contain risks posed by 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.