The chief of the Financial Conduct Authority has said that artificial intelligence could disrupt the financial services sector in “ways and at a scale not seen before”, warning that the regulator would look to take action against AI-based scams.
In a speech today, Nikhil Rathi said AI could offer opportunity to the market but open up major risks if “unleashed unfettered”, pointing to a rise in scams and a number of hoaxes that have spread on social media and shifted the market.
“Generative AI can affect our markets in ways and at a scale not seen before,” Rathi said.
“Just last week, an online scam video used a deep fake, computer generated video of respected personal finance campaigner Martin Lewis to endorse an investment scheme,” he added.
Cyber fraud, cyber attacks and identity fraud were also ramping up in scale and sophistication, he said, meaning that firms will have to rapidly build up their fraud prevention and cyber resilience initiatives.
“We will take a robust line on this – full support for beneficial innovation alongside proportionate protections,” he said.
The comments mark a signal intent from the regulator after an explosion in the usage of generative AI tools like ChatGPT in recent months.
The UK has looked to carve out a globally leading role on AI regulation, with Rishi Sunak set to host a global summit in the autumn to scope out a worldwide rulebook for the technology.
The FCA is set to roll out an AI sandbox for financial services to let firms test and tweak new AI products in the market in controlled conditions. Similar testing arenas have been a successful ploy for the watchdog in the fintech sector and have been adopted by regulators globally.
Rathi’s AI warnings came alongside a shot across the bow of big tech in financial services, which Rathi said risked threatening “operational resilience in payments, retail services and financial infrastructure.”
“Partnerships with Big Tech can offer opportunities – particularly by increasing competition for customers and stimulating innovation – but we need to test further whether the entrenched power of Big Tech could also introduce significant risks to market functioning,” he added.
The FCA also called for further input from the market on the role of Big Tech firms as gatekeepers of data and the “implications of the ensuing data-sharing asymmetry between Big Tech firms and financial services firms.”