MPs launch inquiry into AI and financial services - is it time to regulate the robots?

MPs have launched an inquiry into the role of artificial intelligence (AI) in financial services as the technology becomes more entwined with the sector.

Recent Bank of England data showed 75% of firms are already using AI, with a further 10% planning to use it over the next three years.

You may have come across AI on customer service lines or even when trying to build an investment or pension portfolio.

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But the Treasury Committee is concerned about the volatile and rapidly evolving nature of the AI market, as seen with the launch of DeepSeek and its impact on the Magnificent 7 last week.

The inquiry is seeking views on how AI is currently used in financial services and the risks it creates.

The committee said it may review the extent to which AI could jeopardise financial stability and question if there is the potential for increased cyber security risks.

MPs also want to understand what safeguards such as extra regulations may be needed to protect financial consumers, particularly vulnerable ones who may be at risk of bias.

It comes as the government is banking on the AI sector to boost economic growth in the UK.

Dame Meg Hillier, chair of the Treasury Committee, said: “It’s critically important the City can capitalise on innovations in AI and continue to be a world leader in finance.

“We must, though, also be mindful of ensuring there are adequate safeguards in place to mitigate the associated risks, particularly for customers. This piece of work will allow us to see the full picture.”

The deadline for submissions is Monday 17 March but AI is already being widely used across all sorts of financial products.

Here are is how AI could help or hinder your finances.

How AI is already used in financial services

The insurance sector has the highest percentage of firms currently using AI at 95%, according to the Bank of England.

If you have ever had to phone a bank or insurer’s customer service helpline or deal with an online chatbot, then you are already interacting with AI.

Other uses that have been highlighted by the Bank of England and Financial Conduct Authority include spotting fraud, assessing creditworthiness on loans and analysing accounts and spending patterns to show how much you can afford to save or invest.

Nina Cherry, wealth consultant at Simplify Consulting, said: "This is an opportunity for firms to provide their input as to the use of AI is well timed. There are so many innovative use cases for the application of AI within the industry and many of these are already bearing fruit.

“As this adoption gathers pace, we absolutely need to be mindful of the risks as well as the benefits, and we do need to understand the impact this will have on the workforce.

"AI is a powerful tool to support and empower people rather than replace them. It will be interesting to see the responses from this call for evidence and what direction the Treasury Committee decides to take as a result."

Filling the advice gap

Supporters of AI suggest it could help provide financial guidance to those who cannot afford advice.

Holly Mackay, founder of Boring Money, says AI can play a role helping to reduce the advice gap, estimated at more than 12 million consumers today.

She told MoneyWeek, “We are some way off having wholesale confidence in AI’s ability to help more complex or nuanced financial situations and advice, however we can see how it might be used to enable better customer outcomes for those in accumulation with relatively simple needs.

"We are testing this at Boring Money, to help consumers filter choice and see more personalised content and tools.”

The risks of AI in financial services

There are of course risks to leaving your investment or pensions advice in the hands of a robot.

AI tools have been shown to be wrong or to even lie in some cases, which could be dangerous for consumers.

“AI can be great for financial services,” says Joshua Gerstler, wealth manager at The Orchard Practice.

“However, people should not rely on it solely. AI cannot understand your fears and concerns, your dreams and goals, like a human can. It cannot tell when you say one thing and mean something else. There are many positives about AI in financial services but there is a long way to go.”

Daniel Wiltshire, an independent adviser at Wiltshire Wealth, adds that whilst AI can be “incredibly helpful” for back-office tasks and research, it should never come between the adviser and the client.

He says: “Probably the most under-rated skill of a decent adviser is empathy. Tone and context matter a lot. This is people's life savings and retirements we're talking about - you can't just hook them up to an algorithm and expect good outcomes.”

Mackay warns against trying to regulate AI though. She says: “If AI is used to help consumers, this could fall under the broader Consumer Duty umbrella of being able to evidence good customer outcomes, we might be able to avoid drafting lengthy rules around AI.

“And – not wishing to be rude – but regulators are always a few steps behind cyber criminals and tech whizzes, so very prescriptive regulation around AI would be almost impossible to update, maintain and enforce.”