July 7, 2026, (Inside AI) — Britain’s financial regulator is facing calls to overhaul its oversight of large language models after a review found that more than a quarter of UK consumers now trust AI tools like ChatGPT, Claude, and Gemini for financial advice—often without realizing those services lack the protections of regulated firms.
The review, commissioned by the Financial Conduct Authority and published Monday, was led by the FCA’s executive director Sheldon Mills. It highlights a growing gap between consumer behavior and the regulatory perimeter, as AI chatbots increasingly blur the line between generic guidance and personalized financial recommendations.
Mills stopped short of recommending immediate enforcement action. Instead, he urged the FCA to assess within the next three to six months whether to “secure and adapt” its regulatory boundary by examining the scale, nature, and impact of AI models operating outside it.
“That’s a big question for policymakers and one that will only become more pressing as AI adoption accelerates,” said Jonathan Herbst, global head of financial services at law firm Norton Rose Fulbright.
The review marks the first time a global regulator has systematically studied AI’s impact on financial services, the FCA said. However, the watchdog is not obligated to act on any recommendations.
When Chatbots Cross the Advice Line
Under UK law, financial advice is a regulated activity that can only be provided by authorized businesses. AI systems are permitted to offer generic information, but Mills warned that continuous, adaptive recommendations from a chatbot could start to look like regulated advice—potentially exposing consumers to harm.
The findings reveal a striking trust gap: consumers are embracing AI for financial decisions while remaining largely unaware that the Financial Ombudsman Service and Financial Services Compensation Scheme do not cover AI-generated advice. This leaves users with little recourse if things go wrong.
OpenAI, Anthropic, and Google representatives were not immediately available for comment.
The review also underscores a systemic concentration risk. Financial firms are increasingly reliant on a small number of technology providers for critical operations. Shared dependence on the same models, cloud infrastructure, or data pipelines could create correlated behavior, herding, and common points of failure across the financial system, the review said.
A recent survey found that 81% of financial firms globally are adopting AI at some level, with 40% at more advanced stages. While most use cases remain in lower-risk back-office functions, UK companies are increasingly deploying AI in customer-facing roles such as complaints handling and investment guidance.
Central Bank Sounds Alarm on Agentic AI
The FCA’s review comes just days after Bank of England deputy governor Sarah Breeden signaled for the first time the need for bespoke AI regulation to contain risks from increasingly capable agentic systems.
“Our frameworks were not built to contemplate autonomous agents, and relying on a human in the loop for all agent actions is unlikely to be realistic,” Breeden said in a speech last week.
Her comments reflect growing unease among central bankers and regulators worldwide about the speed of AI adoption in finance. The European Union’s AI Act, which came into force earlier this year, imposes strict rules on high-risk AI systems, but its application to financial advice remains a gray area. In the US, the Securities and Exchange Commission has proposed rules targeting conflicts of interest in AI-driven investment tools, but no final framework has emerged.
Mills’ review does not call for a specific new law. Instead, it raises fundamental questions about whether existing rules—designed for human advisors and traditional firms—can cope with AI systems that learn, adapt, and operate at scale without direct human oversight.
The FCA has long championed a “technology-neutral” approach, but the review suggests that principle may need to evolve as AI becomes more embedded in financial decision-making. The next few months will reveal whether the regulator moves to extend its perimeter or opts for a wait-and-see approach as global counterparts grapple with the same dilemma.
