UK financial watchdog sounds alarm over AI arms race as millions seek automated money advice

A top British financial regulator is warning that oversight bodies are caught in an escalating competition to monitor artificial intelligence's expanding footprint in the financial sector, as millions of ordinary people turn to chatbots and language models for personal money management guidance.

Sheldon Mills, executive director at the Financial Conduct Authority (FCA), cautioned that the pace of AI adoption has outstripped the regulator's current capacity. He has called for British authorities to reconsider whether large language models like ChatGPT, Claude, and Gemini should fall under existing regulatory frameworks.

The regulatory gap#

A major concern highlighted in Mills' report—due for release on Monday—is that much of this financial guidance operates in a legal gray zone. Research found that roughly one in five UK adults would be comfortable letting AI systems make financial choices on their behalf, such as decisions about savings or borrowing. Yet these tools fall outside official regulatory oversight, meaning consumers have no legal protection if things go wrong.

Traditional regulated financial firms face strict requirements when offering comparable advice. By contrast, unregulated AI services can operate with minimal constraints, creating what Mills describes as an economically similar service sitting outside the regulatory perimeter.

Opportunities and dangers#

The FCA report acknowledges that AI brings genuine benefits to finance: tailored product recommendations could help better match services to individual needs. However, the same technology enables new forms of harm. The report notes that "hyper-personalization could help better match products to needs, but also enable bias, opaque pricing, and personalized manipulation."

To address these dual-edged risks, Mills stressed that regulators themselves must become proficient with AI tools, adopting the same technology to detect and monitor financial harm at the speed and scale the sector is now moving.

What comes next#

The FCA plans to conduct a focused review within the next three to six months, examining both the risks of unregulated financial services and potential consumer damage from reliance on unmonitored AI models for money decisions. The outcome could reshape how Britain oversees algorithmic finance.