TL;DR

The UK Treasury Committee has called for AI-specific stress tests for financial firms and detailed FCA guidance on consumer protection by end of 2026. The report warns regulators are taking a “wait and see” approach whilst three-quarters of UK financial firms deploy AI across core functions.

Stress Tests for AI-Driven Markets

A cross-party group of UK lawmakers has urged the Financial Conduct Authority and Bank of England to begin running AI-specific stress tests to help financial firms prepare for market shocks triggered by automated systems. The Treasury Committee report criticises regulators for not doing enough to prevent AI from harming consumers or destabilising markets.

“Based on the evidence I’ve seen, I do not feel confident that our financial system is prepared if there was a major AI-related incident and that is worrying,” said committee chair Meg Hillier.

Significant Risks Identified

The report acknowledges AI’s benefits whilst warning of significant risks:

  • Opaque credit decisions: Lack of transparency in how AI influences loan and insurance assessments
  • Vulnerable consumers: Risk of algorithmic exclusion through AI-driven tailoring
  • Fraud and misinformation: Spread of unregulated financial advice through AI chatbots
  • Systemic concentration: Heavy reliance on a small group of US tech giants for AI and cloud services
  • Herding behaviour: AI-driven trading systems may amplify market movements during shocks

The committee noted that banks racing to adopt agentic AI—which can make decisions and take autonomous action—creates new risks for retail customers.

Regulatory Response and New Champions

The FCA has indicated it does not favour AI-specific rules due to the pace of technological change, though it welcomed the committee’s focus and will review the findings.

Separately, the Treasury has appointed Starling Bank CIO Harriet Rees and Lloyds Banking Group’s Rohit Dhawan as “AI Champions” to help steer AI adoption in financial services.

Looking Forward

For UK SMEs working with financial services, this report signals that clearer AI accountability frameworks are coming. Businesses should anticipate requirements around explainability of AI-driven decisions and prepare documentation demonstrating how consumer protection rules apply to their AI deployments.

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