The UK’s financial services regulators – the Bank of England, the Prudential Regulation Authority and the Financial Conduct Authority (together, the Supervisory Authorities) – have jointly published a discussion paper (DP5/22) on the use of artificial intelligence (AI) and machine learning (ML) in financial services on 11 October 2022.
Given how pervasive the use of AI and ML in the financial services sector is becoming, and the implications that regulation will have on consumers, businesses and markets, the Supervisory Authorities are keen to hear from a broad range of stakeholders on the safe and responsible adoption of AI and ML in the financial services sector in the UK.
The Supervisory Authorities recognise that the use of AI and ML has grown over recent years (and is likely to continue to do so) and that AI and ML has the potential to transform financial services – enabling firms to offer better products and services to consumers, provide operational efficiency, increase revenue, and drive innovation. The Supervisory Authorities also recognise that AI and ML may pose novel challenges for firms and regulators, and amplify existing risks to consumers, the safety and soundness of firms, market integrity, and financial stability.
This means that one of the hottest topics amongst financial services regulators – in the UK and overseas – is now how to regulate AI and ML to ensure it delivers in the best interests of consumers, firms and markets. Does the current regulatory framework need updating for clarification purposes, or strengthening? How can regulators mitigate the risks posed by AI and ML while facilitating innovation? Can the challenges that AI and ML brings to firms and regulators be addressed through existing regulatory tools, such as the FCA’s Senior Managers and Certification Regime? What about the harm that can arise from targeting consumers behavioural biases or vulnerabilities, or from businesses leveraging a dominant position? What existing industry standards (if any) are useful when developing, deploying and using AI and ML, and can these be adopted in the financial services sector? The discussion paper includes these questions, and many more.
The discussion paper closes on 10 February 2023. Stakeholders can submit their comments to DP5_22@bankofengland.co.uk before this deadline.
Kam Dhillon
Kam is a London-based principal associate at Gowling WLG. Kam is also a member of the firm's Tech sector team, actively engaged in the technology sector as a whole. She advises on funds and financial services regulation.