FCA outlines AI regulation shift for UK financial services

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FCA outlines AI regulation shift

Highlights

FCA chief Nikhil Rathi reports over 80% of UK financial services firms are scaling AI, focusing on agentic systems and tokenisation to automate infrastructure.
FCA has approved Baillie Gifford and Bank of New York Mellon's launch of the UK's first natively tokenised authorised fund, and set direction for tokenised wholesale markets.
FCA plans supervisory changes to address technological acceleration, including AI-powered market monitoring and new approaches to systemic risk from cloud and data provider dependencies.

Regulatory reset for agentic AI and tokenisation

As the Financial Conduct Authority said in a speech by chief executive Nikhil Rathi at techUK's Agents of Change event, the watchdog sees financial services as central to the UK's ambition to become a leading AI economy because the sector provides capital, infrastructure and trust for wider adoption.

Rathi says more than 80% of financial services firms are already adopting AI, shifting the debate from experimentation to scale. He identifies two major opportunities, agentic systems that can coordinate and transact in retail and wholesale markets, and tokenisation, which he says can lower costs, reduce risk and support more automated financial infrastructure.

He says agentic systems could enable smarter bill management, personalised investment strategies and smoother trading and liquidity workflows, but adds that investors will be cautious about delegating important decisions to systems they do not understand. Accountability for regulated activities and outcomes must remain clear, with human oversight designed to give consumers confidence.

On tokenisation, Rathi points to bank pilots of tokenised deposits and says the FCA approved Baillie Gifford, alongside Bank of New York Mellon, to launch the UK's first natively tokenised authorised fund. He also says the FCA and the Bank of England have set out a direction for tokenised wholesale markets.

Wider market risks and supervisory changes

Rathi says the speed of technological change means legislation will never fully keep pace, prompting the FCA to rethink how it supervises markets, gathers intelligence and collaborates with firms. He says the regulator is exploring agentic AI as a first responder to improve wholesale market monitoring, using large data sets and supervisory judgement to detect market abuse faster.

While detailed rules will still be needed in some areas, he says traditional rule-making will no longer work everywhere and that a larger part of the FCA's role will involve stewardship alongside supervision. That includes helping firms navigate technological change and acting before legislation catches up when emerging risks become clearer.

He also warns that growing reliance on cloud, model and data providers across the AI stack is increasing interconnected risks for systemic resilience, market integrity and financial crime. Fraud, he says, increasingly sits at the intersection of financial services, technology and telecoms, requiring a broader model of cross-sector collaboration.

In our earlier article on the tech-led chip stock selloff and wider market volatility, we noted that investors were reassessing how far the AI-fuelled rally could run after sharp declines in major semiconductor names. We also highlighted Micron’s results as a key near-term test for confidence in AI-related demand, with rate expectations and broader risk sentiment amplifying market swings.

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