The UK financial services regulators, the Bank of England (BoE), the Prudential Regulation Authority (PRA), and the Financial Conduct Authority (FCA) – together Supervisory Authorities – jointly published a discussion paper (DP5/22) on artificial intelligence (AI) and machine learning on 11 October 2022. The purpose of the discussion paper was to facilitate a public debate on the safe and responsible adoption of AI in UK financial services.
Principally, the discussion paper examines:
the potential merits of providing a regulatory definition for AI;
the benefits, risks, and harms related to the use of AI and machine learning that could significantly affect or even transform how financial services and markets operate;
how the current regulatory framework could apply to AI.
The Supervisory Authorities have also raised discussion questions for stakeholder input, with the aim of understanding whether the current regulatory framework is sufficient to address the potential risks and harms associated with AI and how any additional intervention may support the safe and responsible adoption of AI in UK financial services.
The discussion paper provides a platform for the Supervisory Authorities, experts and stakeholders to collaborate and jointly assess whether the current legal framework can adequately regulate AI technology by safeguarding each of the Supervisory Authorities’ objectives while at the same time promoting innovation in UK financial services.
This consultation occurs in parallel to the UK government’s ongoing work in developing its own cross-sector approach to the regulation of AI technology and will therefore provide a valuable contribution to this broader policy debate.
The Supervisory Authorities point out that there are benefits for establishing a precise definition of AI which include: creating a common language for firms and regulators, which may ease uncertainty; assisting in a uniform and harmonised response from regulators towards AI; and providing a basis for identifying whether or not specific use cases might be captured under particular rules and principles.
The benefits and risks of using AI have been categorised in the discussion paper based on each of the Supervisory Authorities’ objectives, namely consumer protection, competition, safety and soundness of firms, insurance policyholder protection, financial stability, and market integrity.
The Supervisory Authorities have also provided current and future legal requirements and guidance that are relevant to mitigating the risks associated with AI, including but not limited to the FCA Consumer Duty rules, UK General Data Protection Regulation (UK GDPR), Equality Act 2010 and Senior Managers and Certification Regime (SM&CR).
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