AI demands new regulatory focus on competition, resilience
FCA Chief Executive Nikhil Rathi outlined a new regulatory approach for AI in financial services, emphasizing competition, collaboration, and systemic risk awareness. Speaking at techUK's Agents of Change event, Rathi noted that AI's rapid evolution challenges traditional frameworks.
Agentic systems and tokenisation drive change
FCA Chief Executive Nikhil Rathi highlighted financial services' central role in making the UK a world-leading AI economy, providing capital, infrastructure, and trust.
Over 80 percent of firms adopt AI, shifting focus to scaling innovations.
Rathi identified two key opportunities: agentic systems and tokenisation.
Agentic systems will move beyond supporting decisions to coordinating and transacting, profoundly changing market structure.
Tokenisation offers potential to reduce costs, mitigate risks, and unlock new services, creating automated infrastructure.
Recent examples include banks piloting tokenised deposits and the approval of the UK's first natively tokenised authorised fund.
The FCA, with the Bank of England, is actively seeking input on tokenised wholesale markets, closing next week.
Adapting supervision for a faster market
Rathi acknowledged AI's rapid progress outpaces traditional regulatory paradigms, demanding a re-evaluation of effective supervision.
The FCA's strategy emphasizes rebalancing risk, shifting towards stewardship alongside supervision.
This involves leveraging technology, like exploring agentic AI as a 'first responder' for monitoring wholesale markets and tackling market abuse faster.
The FCA's competition objective gains increased importance, ensuring markets work for consumers and the economy.
System-wide powers are expected to be utilized more frequently.
Collaboration between firms, especially in Open Banking and frontier AI, is vital for navigating technological change.
Resilience demands collective defense
Financial services' reliance on AI stack providers creates systemic resilience risks, particularly from fraud and cyber threats.
Boards must understand evolving dependencies on critical third parties, as operational incidents increasingly relate to technology.
Collective intelligence sharing between firms and authorities is crucial to defend the system against frontier AI risks.
Source: Re-thinking regulation for the age of AI
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