The Financial Conduct Authority (FCA) has warned that artificial intelligence (AI) technology could become a “defining force” in retail financial services, changing how consumers make financial decisions over the next few years.
The regulator this week published the Mills Review, a report examining the potential impact of advanced AI on consumers, firms, markets, and regulators.
It recommended that the FCA scale up its own AI operations and “lab” to support regulated innovation and experimentation, as well as adopting AI technology within its own operations.
Other recommendations included strengthening co-ordination and oversight and the adaptation of regulatory frameworks to reflect the influence of AI.
The FCA said it would publish good and poor practice guidance on AI later this year, following engagement with firms on where the technology is working well and where further clarity may be needed.
The Mills Review identified four major shifts likely to affect retail financial services, including the transformation of firm operations, the evolution of consumer journeys, the reshaping of competition and market power, and the amplification of fraud and cyber risks.
The FCA said AI could improve access, personalisation and efficiency, but warned that it could also increase the risk of consumer harm, particularly as more people begin using tools capable of acting on their behalf.
“While AI has a role to play in improving engagement and understanding, consumers need to treat it as a starting point, not a substitute for professional guidance, scheme information or regulated advice.”
David Brooks, Broadstone
Research commissioned by the regulator found that one-fifth of people, equivalent to 11m UK adults, would be likely to use agentic AI in personal finance. These systems can act autonomously within pre-set goals, although consumers surveyed by the FCA raised concerns about trust and control.
Sheldon Mills, executive director at the FCA, said: “Artificial intelligence will transform financial services by 2030. It creates significant opportunities for consumers, firms and the wider economy. This report sets out a roadmap for how industry regulators and government can prepare for the next phase of AI-driven change in our world-leading financial services sector.”
Ashley Alder, chair of the FCA, said the recommendations built on existing FCA work, including allowing firms to test their use of AI with the regulator and using AI to make the FCA “more efficient and effective”.
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The review also raises questions for pensions, where AI tools could support member engagement but may also increase the risk of poor decisions if consumers rely on incomplete or inaccurate outputs.
David Brooks, head of policy at Broadstone, said pensions were complex, long-term financial arrangements where mistakes could have lasting consequences.
“While AI has a role to play in improving engagement and understanding, consumers need to treat it as a starting point, not a substitute for professional guidance, scheme information or regulated advice,” he said.
Brooks explained that public understanding of AI’s limitations would be as important as improving the technology itself. “Trust should be earned through accuracy and accountability, not assumed because an answer sounds convincing,” he said.
He added: “One of the FCA’s biggest challenges may be protecting consumers from bad pension decisions driven by good-looking AI answers. Generative AI is excellent at sounding authoritative, but not always at being right. When retirement savings are involved, people need to understand that convenience is not the same thing as reliability.”
Sophie Legrand-Green, head of policy for consumer protection and access at The Investment and Savings Alliance, said: “Responsible AI adoption means clear rules, robust testing and strong governance.
“These tools must be tested against real consumer risks, including vulnerability, comprehension, bias and access to redress, before they become embedded in everyday financial decision-making.”
