Insights Artificial Intelligence: FCA responds to Government White Paper


The Financial Conduct Authority (“FCA”) has published its response to the Government’s White Paper on Artificial Intelligence (on which we’ve previously commented here).

The FCA supports the Government’s pro-innovation approach to regulation and sets out how it currently plays its part in addressing the five principles identified by the Government of: (1) safety, security, robustness; (2) appropriate transparency and explainability; (3) fairness; (4) accountability and governance; and (5) contestability and redress. It commits to ensuring the safe and responsible deployment of AI in financial markets in the interests of consumers and the markets it regulates, and notes that its “technology-agnostic” approach to regulation means that it will not usually mandate or prohibit certain technology, but instead assess and mitigate the risks of firms’ use of it. The paper also details how the FCA is currently using AI to protect consumers and markets, and how it intends to explore ways to use the technology to identify particularly complex types of abuse that are difficult to detect.

The FCA also sets out its plans for the year ahead in relation to AI. First, it intends to continue to understand how AI is deployed in UK financial markets so that any regulatory responses balance the need to mitigate risks with the need to encourage innovation. Second, it will continue to monitor the development of the technology (and firms’ use of it) to determine if ‘regulatory adaptations’ may be necessary. For example, it points to regulatory regimes in relation to operational resilience, outsourcing, and critical third parties as being of “increasing relevance to firms’ safe and responsible use of AI”. Third, the FCA will continue to collaborate with other institutions and regulators (both in the UK and internationally) and generally work on a range of projects to ensure that the increasing use of AI by firms will not have an adverse effect on consumers.

Separately, the chief executive of the FCA, Nikhil Rathi, delivered a speech in which he announced that Big Tech is a priority for the FCA. In particular, he commented on how the growing emergence of Big Tech in financial services makes it all the more important that the FCA examines how consumers’ data will be used (and shared), not least to ensure that there is effective competition in the marketplace and that data asymmetry does not lead to worse outcomes for consumers. If the FCA’s analysis finds that the data held by Big Tech is valuable in financial services, he commented that it will look to incentivise more data sharing between Big Tech and financial firms through the FCA Open Banking and broader Open Finance work. Furthermore, if it finds potential risk or harms from the non-sharing of data, it will also look to develop proposals for the Competition and Markets Authority to consider when they are given powers to regulate designated firms’ digital and data conduct, as expected in the Digital Markets, Competition and Consumers Bill.

The FCA’s report can be read here, and the CEO’s speech can be read in full here.