A senior UK official has warned that financial regulators are engaged in an “arms race” to stay ahead of the artificial intelligence (AI) revolution sweeping through the sector.

Sheldon Mills, an executive director at the Financial Conduct Authority (FCA), told The Financial Times that the watchdog needs enhanced powers to manage the swift growth of AI and suggested a review of rules for popular AI models like ChatGPT and Claude.

The FCA-commissioned report by Mills identifies both benefits and risks associated with AI in financial services, highlighting potential issues such as hyper-personalization, bias, and opaque pricing. The report recommends the FCA conduct a review within three to six months to address these concerns.

Research reveals that one in five UK adults are open to using AI for financial decisions, despite these models not being covered by regulation, which could leave consumers exposed if things go wrong.