Treasury Committee report warns current approach to AI in financial services risks serious harm

The Treasury Select Committee published a report on 20 January 2026 concluding that the Bank of England, the Financial Conduct Authority and the Treasury are exposing the public and the financial system to potentially serious harm through their current positions on artificial intelligence in financial services¹. The committee said a wait-and-see approach by the three bodies was not doing enough to manage the risks of increased AI use in the sector¹.

Evidence received by the committee found that more than 75% of UK financial services firms are now using AI, with the largest take-up among insurers and international banks¹. Uses include automating administrative functions and delivering core services such as processing insurance claims and credit assessments¹. The report acknowledges that AI and wider technological developments could bring considerable benefits to consumers, and encourages firms and the FCA to work together so the UK capitalises on those opportunities¹.

The committee's recommendations include AI-specific stress-testing by the Bank of England and the FCA to improve businesses' readiness for a future AI-driven market shock, and practical FCA guidance on AI for firms by the end of 2026¹. That guidance should cover how consumer protection rules apply to firms' use of AI and set out more clearly who in those organisations is accountable for harm caused through AI¹.

On the Critical Third Parties Regime, which gives the FCA and the Bank of England powers of investigation and enforcement over non-financial firms providing critical services to the sector, including AI and cloud providers, the report notes that no organisations have yet been designated despite the regime being set up for more than a year¹. The Government decides which firms are brought into the regime, and the committee urges it to designate AI and cloud providers deemed critical¹.

Why it matters for households

AI is already embedded in processes that decide household outcomes, including insurance claims and credit assessments, according to the evidence cited by the committee¹. The report's concern is that oversight has not kept pace: consumer protection rules and accountability for AI-related harm are among the areas it says need clearer FCA guidance, due by the end of 2026¹. The committee also warns that the public and the financial system face potentially serious harm under the current approach¹.

The Critical Third Parties Regime is the mechanism the committee wants used to oversee AI and cloud providers whose failure could disrupt services households rely on. No firms have been designated under it so far, more than a year after it was set up¹. Until designations are made, the FCA and the Bank of England cannot use the investigation and enforcement powers the regime provides over those providers¹.

What happens next

The report sets a deadline of the end of 2026 for the FCA to publish practical AI guidance for firms¹. It also calls for AI-specific stress-testing by the Bank of England and the FCA, and for the Government to designate critical AI and cloud providers under the Critical Third Parties Regime¹. No dates have been reported for the stress-testing or for any designations. The Financial Conduct Authority and HM Treasury have not responded to the recommendations in the material published alongside the report.