Innovation is all around us. From foldable cellphones to spaceship-like cars to – perhaps one of modern day’s most significant inventions – artificial intelligence (AI), technology advances at lightning speed.
The speed of AI in particular presents industries with great potential, and while there has been hesitation, recent shifts have revealed that financial regulators like the Financial Conduct Authority (FCA) are coming around to AI adoption due to its ability to transform financial services.
The FCA’s newly announced five-year strategy is meant to “deepen trust, rebalance risk, [and] support growth,” and the regulator hopes to fuel this mission by harnessing innovation. To do so, it plans to embrace technological change and cultivate a collaborative environment that supports experimentation.
Is technological evolution the new pulse of regulation?
In a recent speech, Jessica Rusu, chief data, information and intelligence officer at the FCA, announced that the regulator will be leading with innovation to propel its five-year strategy.
A core aspect of the FCA’s new strategy is supporting economic growth, and in current times the best way to achieve growth is through technological evolution. By taking an innovation-led approach, the FCA will be able to uphold the four pillars that support its strategy: smarter regulation, enhanced growth, consumer protection, and financial crime deterrence.
As part of its efforts to encourage responsible AI experimentation and innovation, the FCA has also created a Supercharged Sandbox, which is an improved version of its original Regulatory Sandbox, to offer firms enhanced datasets, better computing abilities, and more advanced tools.
To revamp its Sandbox offering, the FCA also announced its collaboration with Nvidia, a computing infrastructure company that manufactures hardware and software solutions that power AI models. Rusu stated that these changes are meant to bolster the investment in AI technologies:
“We want to give firms the confidence to invest in AI in a way that drives growth and delivers positive outcomes for consumers and markets.”
Teamwork makes the dream work
Prior to this strategy change, the FCA received considerable criticism for its proposals to “name and shame” firms under investigation. Proposed in February 2024, the U.K. regulator aimed to foster transparency and deter misconduct by naming firms under investigation. Instead, the proposal was deemed “an abject failure” by government officials, and “shambles from start to finish” by industry commentators.
The FCA has changed tactics to support the U.K.’s growth agenda in response to heightening criticism, pledging to develop a “different relationship” with firms and to reduce the “regulatory burden.” One such change that’s demonstrated this different relationship is the regulator’s initiative to collaborate with firms in shaping the structure of its AI Live Testing service. Reportedly, firms have expressed their support for this move toward collaboration and transparency.
In addition, the FCA has addressed concerns from firms around regulatory uncertainty and ambiguous governance frameworks. In response to these questions, the regulator has reaffirmed that it will govern AI implementation with existing frameworks instead of introducing new rules, such as will Consumer Duty or the Senior Managers Regime (SMCR). Rusu explained how this decision will help the industry remain as adaptable and agile as possible:
“This in fact gives us a competitive advantage. Avoiding new regulation allows us to remain nimble and responsive as technology and markets change. You’ve seen our policymaking processes – how could we possibly write rules that keep up with the speed that AI is changing?”
Forging a future-forward path with the FCA
Despite regulatory amiability, hesitance around AI adoption persists. A significant barrier that has prevented the adoption of AI technology is the uncertainty with which regulators have approached it in past years. Regulators around the globe have taken various approaches to AI adoption, with the FCA previously stating that it is a “technology-agnostic, principles-based and outcomes-focused regulator.”
Where the U.K. regulator was always partial to a pro-innovation approach, clarification around regulatory scrutiny and compliance frameworks seem to be the first step toward increased implementation. Across the pond, U.S. regulators are making similar movements in encouraging AI adoption by taking a “technology-neutral” approach and deferring to existing guidelines to govern evolving technology.
In a joint survey with the Bank of England, the FCA found that 75% of firms have already adopted some form of AI. Despite this, only 34% of those firms using it understand how it works.
Beyond using AI internally, firms are beginning to integrate it into compliance workflows. Our Industry Insights: Compliant Communications 2025 report found that 33% of firms are already using AI in their compliance workflows, and that 46% of respondents who are not already using AI will be implementing it within the next year.
Alternatively, 54% said they have no intention of implementing AI within their compliance strategy. Despite a slight decrease in skepticism compared to results from the year prior, firms still seem to be looking to regulators for guidance before deciding to adopt generative models.
Now, with regulators across jurisdictions assuming “tech positive” mindsets, is it only a matter of time before AI becomes more completely integrated into financial operations?
