Hot off the press: the Treasury Committee’s Report into AI in financial services and its important recommendations
20 Jan 2026
3 min read
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In February last year, Parliament opened a Call for Evidence on the topic of the use of AI in financial services. Almost a year on, the Treasury Committee's s report is just out and makes some significant recommendations for the financial services industry.
No AI-specific legislation
The report shines a spotlight directly onto the absence of AI-specific legislation and AI-specific financial regulation and on the regulatory reliance upon the existing regulatory framework to supervise financial services firms in their use of AI.
Risk to consumers
The report surfaces the potential for the risk of harm to consumers arising from:
- AI driven decision-making that lacks transparency;
- financial exclusion for the most vulnerable consumers;
- the proliferation of unregulated financial advice from freely available AI search engines; and
- an increased risk of fraud.
Lack of clarity
The report tackles the impact of the current lack of regulatory clarity on individual firms and on the financial services ecosystem as a whole. Specific concerns exist around the regulatory expectations applicable to senior managers in relation to the use of AI.
Financial stability
The report draws out the highest ranking financial stability risks including:
- sector wide cybersecurity issues; and
- the sector's over reliance on a handful of technology firms for AI and cloud services.
The report highlights the preparatory work that the UK has done to bolster its operational resilience relative to interdependent technologies and flags the need for progress relative to the designation of critical third parties.
Conclusions
The report makes a number of conclusions and recommendations that are directly relevant to actions that the financial services regulators could take in order to ensure that AI brings benefits while simultaneously protecting consumers and the wider financial system from serious harm.
Recommendations
The report makes four key recommendations to the financial services regulators:
- Don't wait: do more to manage the risks presented to consumers and the markets by AI;
- Clarity: by the end of the year, provide the financial services sector with greater clarity on the application of existing rules to the use of AI, including comprehensive, practical guidance for firms on the application of existing consumer protection rules and the expectations on senior managers for harm caused through the use of AI;
- Resilience: bolster readiness for AI-driven market shocks by conducting AI-specific stress testing; and
- Designate CTPs: again, by the end of the year, designate the major AI and cloud providers as critical third parties for the purposes of the Critical Third Parties Regime.
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Chair of the Treasury Select Committee, Dame Meg Hillier, said: “Firms are understandably eager to try and gain an edge by embracing new technology, and that’s particularly true in our financial services sector which must compete on the global stage. “The use of AI in the City has quickly become widespread and it is the responsibility of the Bank of England, the FCA and the Government to ensure the safety mechanisms within the system keeps pace. “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. I want to see our public financial institutions take a more proactive approach to protecting us against that risk.”