The Financial Conduct Authority has outlined plans to regulate financial firms which use AI (artificial intelligence) and financial technology companies.

In a speech at the Economist Impact Finance Transformed event this week, FCA CEO Nikhil Rathi said big tech’s role as the 'gatekeepers' of data in financial services will face increased scrutiny.

However he said the regulator will only intervene with new rules or guidance “where necessary.”

The FCA will also shortly open its AI sandbox to firms wanting to test the latest innovations.

Mr Rathi said: “While the FCA does not regulate technology, we do regulate the effect on – and use of – tech in financial services. We are already seeing AI-based business models coming through our Authorisations gateway both from new entrants and within the 50,000 firms we already regulate.

“And with these developments, it is critical we do not lose sight of our duty to protect the most vulnerable and to safeguard financial inclusion and access.”

Prime Minister Rishi Sunak recently said he wants to make the UK the home of global AI safety regulation.

Mr Rathi welcomed this and said the FCA “stand ready to make this a reality for financial services”.

He said that the use of AI could cause issues for UK financial services firms if left unregulated.

He said: “The use of AI can both benefit markets and can also cause imbalances and risks that affect the integrity, price discovery and transparency and fairness of markets if unleashed unfettered.

“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.

“There are other risks too, involving cyber fraud, cyber attacks and identity fraud increasing in scale and sophistication and effectiveness. This means that as AI is further adopted, the investment in fraud prevention and operational and cyber resilience will have to accelerate at the same time. We will take a robust line on this – full support for beneficial innovation alongside proportionate protections.”

In its feedback statement on Big Tech in Financial Services published earlier this week the FCA announced a call for further input on the role of technology firms as gatekeepers of data and the implications of data-sharing asymmetery between technology firms and financial services firms.

Mr Rathi said the FCA was focused on the risks to competition.

He said: “We are open to innovation and testing the boundaries before deciding whether and what new regulations are needed. For example, we will work with regulatory partners such as the Information Commissioner’s Office to test consent models provided that the risks are properly explained and demonstrably understood.

“We will link our approach to our new secondary objective to support economic growth and international competitiveness – as the PM has set out, adoption of AI could be key to the UK’s future competitiveness, nowhere more so than in financial services.”

The FCA also has concerns over the risks that big tech firms could pose to UK financial services.

Mr Rathi said: “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 that the FCA uses AI technology itself within its supervision technology, using it for firm segmentation, the monitoring of portfolios and to identify risky behaviours.