The City watchdog is calling on AI providers to go further in protecting consumers as more people turn to the technology to make financial decisions.

The Financial Conduct Authority (FCA) is urging AI firms to do more to help consumers who are increasingly relying on generic platforms and chatbots, such as Gemini and Chat GPT, for information and investment advice.

Brits have flocked to chatbots for advice amid the industry wide push to get more people investing in the stock market, while traditional financial advice often remains out of reach. 

Regulated firms have also begun integrating AI into their services. However, 40 per cent of young investors mistakenly believe chatbots are regulated by the FCA, leaving them unable to access help or compensation when advice goes wrong.

“This [tech] can significantly widen access to financial tools and information. But it can also blur the boundary between regulated and unregulated activity, and the protections consumers receive,” said Jessica Rusu, chief data, information officer at the FCA in a speech on Monday.

“So we are calling on AI providers to help consumers understand the limits of financial information and advice generated by their models through clear, proportionate and consistent disclaimers.”

Setting boundaries

Regulated firms have adopted AI for reasons ranging from improving product design to creating a path to speak to a person depending on the severity of the complaint.

But Rusu noted that some firms are using the technology in “poor practice” which fails to improve consumer outcomes.

She argued firms are developing tools that lack a defined need, exclude vulnerable consumers or have overstated capabilities which ultimately fail to assist effectively.

Rusu added that many firms are failing to invest appropriately in governance, leaving them without accountability, risk-based controls or human oversight, while others lack “proper cyber insurance”.

She said: “We have seen good examples.But we have also seen firms retrofit governance after technology has already been deployed or fail to adapt monitoring as systems change.”

“That is the wrong way around.”

Regulator’s role

While the focus is on ensuring providers are acting in line with the FCA’s Consumer Duty, which sets the standards surrounding consumer protection, Rusu stressed that the regulator is also working to improve AI in financial services.

The FCA is deploying AI across its operations to “focus on the greatest harms, upskilling staff and investing in technology”, including building tools focused on oversight of anti-money laundering firms and supervising small, wholesale market transactions.

Financial services expressed support for the regulator’s stance on the technology, hailing it a “significant and welcome step”.

“AI is rightly associated with risks, particularly where people rely on unregulated tools, but responsible adoption by regulated firms can also improve outcomes,” said Sam Christopher, proposition director at Quilter.

“The industry needs to work closely with the FCA as we learn more about the opportunities and risks, remaining nimble enough to innovate while ensuring customers are protected from harm.”

But Christopher urged the regulator to not become “overly prescriptive” as the technology and understanding of it continues to develop, arguing regulation needs to be allowed to “evolve” alongside the technology instead of stifling or slowing it down.