The FCA's reluctance to implement AI-specific rules shifts regulatory responsibilities to firms, sparking debate over balancing innovation and oversight amid evolving technology and uncertain compliance landscape.

The stance of the Financial Conduct Authority (FCA) on regulating artificial intelligence (AI) within financial services is generating considerable debate and uncertainty among City firms. The FCA has largely resisted implementing specific regulations solely for AI, with Omar Salem, a partner in financial regulation at Fox Williams LLP, highlighting that although the FCA claims it doesn’t directly regulate technology but rather concentrates on outcomes, this position becomes increasingly difficult to uphold — especially given AI’s significant and distinctive influence across financial markets. The FCA adheres to the principle of “same risk, same regulatory outcome,” yet the unique risks posed by AI—such as market flash crashes or consumers being exploited through behavioral biases—complicate straightforward application of existing regulations. This creates challenges in ensuring appropriate oversight.

Despite this stance, it’s noteworthy that the FCA has previously regulated certain technologies, including algorithmic trading and cloud-based outsourcing. Salem comments that by avoiding dedicated AI regulation, the FCA essentially shifts the burden onto firms to interpret how existing rules apply, a complex task fraught with uncertainties and potential for retrospective enforcement if issues arise later. While high-level principles—such as requiring adequate systems and controls—offer some guidance, they lack the specificity needed for comprehensive compliance. This results in a regulatory environment akin to a “porridge,” where firms must navigate uncertainty and craft their own approaches.

Recent developments further reveal the FCA’s cautious approach. As of June 2024, FCA CEO Nikhil Rathi confirmed that there are no plans to introduce detailed, AI-specific regulations in the near future. His reasoning centers on the rapid evolution of AI technology, which could render new rules obsolete swiftly. Instead, the FCA prefers to rely on existing regulatory frameworks, primarily the Senior Managers and Certification Regime (SM&CR), which holds senior managers directly accountable for managing AI risks within their firms. This approach aligns with the FCA’s 2025-2030 strategy of fostering innovation while mitigating risks. Although the Consumer Duty aims to protect retail consumers, AI-specific concerns have not yet been explicitly integrated into its focus areas.

The FCA does recognize the potential dangers associated with AI, particularly regarding market stability and consumer protection. To support responsible AI experimentation, it has introduced initiatives like the AI Live Testing Service, allowing select large firms to test AI models in controlled environments with FCA feedback. However, participation remains limited, and smaller or emerging firms are left navigating the uncertain regulatory landscape alone. Industry observers note that AI-driven “robo-advice” could significantly improve access to quality financial advice, but ongoing regulatory ambiguity hampers wider development and implementation.

In 2025, the FCA took further steps to encourage AI innovation by partnering with Nvidia to launch a ‘Supercharged Sandbox.’ Scheduled to begin testing in October 2025, this initiative offers firms access to advanced computing platforms, AI software, technical expertise, and regulatory guidance within a controlled environment. This aligns with the government’s broader strategy to foster innovation and promote economic growth through regulatory support and experimentation. The collaboration aims to facilitate industry progress in data analysis, automation, and risk management, enhancing efficiency across the sector.

Meanwhile, discussions around regulating AI providers themselves are progressing. The FCA, in conjunction with the Bank of England and Prudential Regulation Authority (PRA), is exploring the designation of certain AI service providers as critical third-party providers (CTPs). With new requirements effective from January 2025, designated CTPs would be subject to governance and transparency standards, increasing oversight over AI services integral to financial markets. Currently, no AI provider has been officially classified as a CTP, but this potential regulation underscores the FCA’s intent to tighten oversight of pivotal AI infrastructure.

This landscape highlights an underlying tension: the FCA’s approach of promoting a “tech-positive” stance aims to encourage innovation while managing risks, yet it risks producing a fragmented and confusing regulatory environment. Firms are consequently left to develop sector-specific standards and best practices, often waiting for clearer future guidance or legislation. This contrasts with jurisdictions like the European Union, which moved swiftly to develop comprehensive AI regulations.

Overall, the FCA’s decision not to craft dedicated, detailed AI rules shifts much of the regulatory burden onto firms themselves, raising questions about compliance obligations and enforcement practices. While existing frameworks like SM&CR, the Consumer Duty, and initiatives such as the AI sandbox demonstrate adaptability and support innovation, the absence of explicit, transparent AI-specific regulations may lead to inconsistent outcomes. This ambiguity could slow broader adoption of beneficial AI solutions. City firms must remain vigilant, balancing innovation with robust governance, as the regulatory landscape continues to evolve amid ongoing uncertainty.

Source: Noah Wire Services

Verification / Sources

https://www.cityam.com/the-fcas-refusal-to-regulate-ai-is-pushing-the-problem-onto-city-firms/ - Please view link - unable to able to access data
https://www.reuters.com/technology/detailed-ai-rules-not-cards-now-says-uk-financial-watchdog-2024-06-05/ - In June 2024, the UK's Financial Conduct Authority (FCA) decided against introducing detailed regulations for artificial intelligence (AI) in financial services, citing the rapidly evolving nature of the technology. FCA CEO Nikhil Rathi expressed concerns that new rules could quickly become outdated and suggested that existing regulatory frameworks, along with the direct accountability of senior managers, are sufficient for the time being. The FCA, in collaboration with the Bank of England, planned to oversee critical third-party providers, such as cloud services, to ensure market stability and resilience. This approach contrasts with the European Union's recent passage of new AI regulations, highlighting differing regulatory stances on AI integration in financial markets.
https://www.reuters.com/business/finance/uk-financial-regulator-partners-with-nvidia-ai-sandbox-2025-06-09/ - In June 2025, the UK's Financial Conduct Authority (FCA) partnered with U.S. chipmaker Nvidia to launch a 'Supercharged Sandbox' aimed at enabling financial services firms to test AI technologies in a controlled environment. Set to begin testing in October 2025, the initiative is part of a broader government strategy to foster innovation and boost economic growth. The sandbox provides participants with access to Nvidia's advanced computing platform and AI software, along with technical expertise, better datasets, and regulatory guidance. This program is especially intended for firms at the early stages of AI exploration that may lack resources. The collaboration reflects efforts urged by Finance Minister Rachel Reeves to eliminate regulatory barriers and promote industry growth. Nvidia emphasized that the sandbox allows experimentation with AI-driven advancements in data analysis, automation, and risk management, contributing to increased efficiency and sector-wide progress.
https://www.pwc.co.uk/industries/financial-services/understanding-regulatory-developments/tech-positive-in-practice-the-fcas-evolving-approach-to-ai.html - In June 2025, PwC UK discussed the Financial Conduct Authority's (FCA) evolving approach to artificial intelligence (AI) regulation. The FCA has adopted a 'tech-positive' stance, focusing on outcomes rather than introducing new, detailed rules for AI. This approach aligns with the FCA's 2025-2030 strategy, aiming to promote innovation while managing associated risks. The FCA emphasizes that existing regulatory frameworks, such as the Senior Managers and Certification Regime (SM&CR) and Consumer Duty, are sufficient to address AI-related challenges. The article highlights the FCA's initiatives, including the AI Live Testing Service, which supports firms in testing AI models in a controlled environment with FCA feedback. This strategy reflects the FCA's commitment to fostering innovation while ensuring market stability and consumer protection.
https://www.fca.org.uk/news/speeches/our-emerging-regulatory-approach-big-tech-and-artificial-intelligence - In a speech, the UK's Financial Conduct Authority (FCA) outlined its emerging regulatory approach to big tech and artificial intelligence (AI). The FCA emphasized that while it does not regulate technology per se, it focuses on the effects and use of technology in financial services. The speech addressed key questions about accountability, risk appetite, and compensation related to AI failures. The FCA highlighted the importance of balancing innovation with robust regulation to maintain trust and confidence in financial services. The speech also introduced the upcoming AI Sandbox, a controlled environment for firms to test AI innovations, aiming to support beneficial innovation while managing risks effectively.
https://www.pinsentmasons.com/out-law/news/fca-ai-providers-face-uk-financial-services-regulation - Pinsent Masons reported that the UK's Financial Conduct Authority (FCA) has indicated that artificial intelligence (AI) providers could face regulation under UK financial services laws. The FCA, along with the Bank of England and the Prudential Regulation Authority (PRA), is assessing its approach to critical third-party providers (CTPs), which may include AI service providers. The CTP regime, effective from January 2025, imposes regulatory requirements on designated CTPs, including governance and transparency standards. However, no business has yet been designated as a CTP in the UK. The FCA's update suggests that AI providers could be subject to these regulations, depending on their role and impact within the financial services sector.
https://www.dlapiper.com/en/insights/publications/2024/04/fca-and-pra-ai-update-senior-managers-accountability-for-the-use-of-ai - DLA Piper discussed the Financial Conduct Authority (FCA) and Prudential Regulation Authority's (PRA) update on artificial intelligence (AI) and senior managers' accountability. The update addresses AI principles, including safety, transparency, fairness, accountability, and redress. The FCA and PRA emphasize that existing frameworks, such as the Senior Managers and Certification Regime (SMCR), apply to AI, ensuring governance and accountability. Senior managers are responsible for the safe and responsible use of AI within their firms. The article highlights practical takeaways for firms, including the need for clear governance procedures, AI literacy among senior managers, and proactive risk management to comply with regulatory requirements.

Noah Fact Check Pro

The draft above was created using the information available at the time the story first emerged. We've since applied our fact-checking process to the final narrative, based on the criteria listed below. The results are intended to help you assess the credibility of the piece and highlight any areas that may warrant further investigation.

Freshness check

Score: 8

Notes: The narrative presents recent developments, including the FCA's partnership with Nvidia announced on 9 June 2025 and the upcoming 'Supercharged Sandbox' testing in October 2025. The earliest known publication date of similar content is 5 June 2024, when Reuters reported on the FCA's decision against introducing detailed AI regulations at that time. (reuters.com) The report appears to be original, with no evidence of recycled content. The inclusion of updated data and events justifies a high freshness score. However, the narrative's focus on the FCA's previous stance from June 2024 may indicate a reliance on earlier material, which should be flagged. (reuters.com)

Quotes check

Score: 9

Notes: The direct quote from Omar Salem, a partner in financial regulation at Fox Williams LLP, appears to be original, with no identical matches found in earlier material. This suggests potentially original or exclusive content.

Source reliability

Score: 7

Notes: The narrative originates from City AM, a UK-based business news outlet. While it is a known publication, it is not as widely recognised as some other UK news organisations. The report references statements from Omar Salem, a partner at Fox Williams LLP, a reputable law firm. However, the lack of direct quotes from FCA officials or other primary sources may reduce the overall reliability.

Plausability check

Score: 8

Notes: The claims regarding the FCA's approach to AI regulation align with previously reported positions, such as the 5 June 2024 Reuters article stating that the FCA decided against introducing detailed AI rules at that time. (reuters.com) The narrative also mentions the FCA's partnership with Nvidia announced on 9 June 2025, which is corroborated by other sources. (reuters.com) The tone and language used are consistent with typical corporate and official communications. However, the report's reliance on secondary sources and the absence of direct quotes from FCA officials may raise questions about the depth of the reporting.

Overall assessment

Veredict (FAIL, OPEN, PASS): OPEN

Confidence (LOW, MEDIUM, HIGH): MEDIUM

Summary: The narrative presents recent developments regarding the FCA's approach to AI regulation, including the partnership with Nvidia and the upcoming 'Supercharged Sandbox' testing. While the content appears original and includes updated data, the reliance on earlier material from June 2024 and the lack of direct quotes from FCA officials may raise questions about the freshness and depth of the reporting. The source's reliability is moderate, and the plausibility of the claims is supported by other reports. Therefore, the overall assessment is OPEN with medium confidence.