AI for growth – how the FCA can help

Introduction

It’s been 2 years since my last keynote at Innovate Finance Global Summit, and it’s great to be back.

Looking back, I’m struck by how much has changed and yet how much has stayed the same.

In 2023, dominating market headlines, we had FTX, followed by Silicon Valley Bank and Credit Suisse, and on the technology front, the advent of AI and adoption of Chat GPT garnering much attention.

Two years on, markets and tech are still hitting headlines. This time we are watching the impacts of tariffs on global markets, with Chat GPT now on version 4.5, and newcomer Deep Seek is demonstrating how rapidly AI is evolving.

Through these market changes, we know consumers and industry look to regulators as a guardian of stability. Having a clear plan for what we prioritise in turbulent times will help financial services, and particularly those who want to innovate and grow their business. 

FCA strategy

FCA watchers will know that we recently launched a new 5-year strategy, aimed at deepening trust in our market and rebalancing risk. There are 4 pillars supporting our strategy:

• be a smarter regulator
• support growth
• help consumers
• fight crime

What does this mean in real terms? Industry, entrepreneurs, and firms scaling their business are looking for a practical, pro-growth, and proportionate regulatory environment, and our new strategy does just that.

Supporting UK growth and innovation

Here in the UK, we excel at financial services – leading the world in commercial insurance, derivates, debt issuance, foreign exchange, and commodities trading.

But we’re not resting on our laurels.

We’ve undertaken ambitious reforms to wholesale markets, overhauling listings rules, and this year, we’re consulting on a world-leading innovation in private markets – Private Intermittent Securities & Capital Exchange System (PISCES) – a new platform to for investors to take stakes in private companies.

The UK has always been an international market, and we recognise that overseas firms may have different needs.

To attract more business to our shores, this year we’ve launched our pre-application support service (PASS) supporting international cryptoasset, payments and wholesale firms considering applying to operate in the UK, giving firms an opportunity to discuss their plans and ask questions before submitting an application.

Innovation

Growth is central to the FCA Strategy, and supporting innovative firms will directly drive growth in the UK.

The FCA has a global reputation as a leader in regulatory innovation[1], having established our Regulatory Sandbox[2] over 10 years ago[3], now complemented by our Digital Sandbox[4] and over 375 data sets we make available to Tech Sprint participants, including synthetic data assets.  

This year, we’ve announced that every firm that uses our Regulatory Sandbox will be provided with an authorisations case officer. This will help firms navigate the authorisation process and bring innovative products and services to the market faster.

Innovation metrics

How do Sandboxes support growth?

Independent studies found that over 90% of firms that engaged with our Innovation direct support and advice services became authorised, and whilst the success rate for Fintech firms can be mixed, 80% of Regulatory Sandbox firms are still in operation.

FCA Sandbox firms are 50% more likely to raise funding than their peers and on average raise 15% more in investment.

Our Sandboxes make a real difference, helping innovators move forward with confidence.

Equally, our agile approach to regulation helps drive growth too.

Let me share two recent examples.

Sprinting for success

The Advice Guidance Boundary Review is a significant policy change designed to help more consumers get the help they need at a price they can afford.

Through a 6-week Tech Sprint, we’ve worked with firms to test a future set of rules relating to simplified advice service and targeted support, before we consult.

This not only helps firms develop new ways to support consumers, but also ensures we develop a policy framework that is data-driven and effective.

Open finance

Sprints are also playing a role in the development of a regulatory framework for open finance. We believe that enabling data-sharing with different financial service providers will offer opportunities for consumer choice, better competition, and growth in our economy.

In March we brought around 100 experts together to work on the building blocks of open finance focusing on financial growth, resilience and digital identity.

The sprint outputs will fuel policy testing, leveraging experimentation to accelerate towards the future of open finance.

Both examples of innovation in regulation, in action.

A smarter regulator

You might have gathered as the FCA’s CDIIO, I have a pro-technology approach to making the FCA a smarter regulator, one of the key pillars of our new strategy.

Last month, we launched our new digital portal ‘MyFCA’ for firms to submit data, pay fees, and manage core interactions with us all in one place.  

In our data lake, we’ve increased the volume and number of data sources, scaling our trading data coverage to around 1 billion records per day.

We’re leveraging advanced analytics to identify bad actors, linking intelligence to action, issuing over 2,240 alerts for unauthorised business last year.

In the Supervision Hub, we are using predictive AI to assist our agents with real-time knowledge, and an AI voice bot to direct the consumer to the correct Agency (FOS, FSCS, or FCA) on first contact, using conversational AI.

And we are experimenting with Large Language Models (LLMs) to analyse unstructured text to deliver efficiencies in our Authorisations and Supervisory processes. Our people remain integral, using their expertise for judgement, while AI focuses on fact extraction and synthesis. Our goal is to respond, decide, and raise concerns faster without compromising quality.

A smarter regulator, enabled by smarter systems.

The FCA AI Lab

The adoption of safe and responsible AI by the financial services industry plays a key role in supporting growth, which is why we developed the AI Lab[5] to bring together our innovation services. 

On the policy front – we believe our existing frameworks like the SMCR and Consumer Duty give us enough regulatory bite that we don’t need to write new rules for AI.

And while we know from our joint FCA-Bank of England AI survey that 75% firms have already adopted some form of AI, most uses cases are for internal applications, rather than things that could directly benefit consumers and markets.

So what’s holding firms back?

Over the past few months, many CIOs, Heads of Innovation, and Chief AI Officers have reached out to ask? Consumer-facing applications? Can we do this?

My answer is yes – the Innovation front-door[6] is always open.

AI Live Testing

So I am delighted to announce today the launch of AI Live Testing, as part of the AI Lab.

FCA AI Live Testing enables generative AI model testing in partnership between firms and supervisors, to develop shared understanding and explore evaluation methods that will facilitate the responsible deployment of AI in UK financial markets, including consumer-facing applications.

Through this testing, firms will be able to build confidence in the performance of the AI they are developing while receiving regulatory support and comfort.

Our goal is to give firms the confidence to invest in AI in a way that drives growth and delivers positive outcomes for consumers and markets while at the same time offering us insights into what is needed to design and deploy responsible AI.

We’re keen to hear from you on how we make AI live testing a true success so please respond to the Engagement Paper[7] we have published this morning and reach out to the Innovation team to signal your interest in testing with us.

Conclusion

I’m grateful for the opportunity to be back at IFGS, and to connect with all the FinTechs and businesses here today.

In closing, I’d like to leave you with three thoughts:

• Fintechs should consider the UK as the best place in the world to scale and grow a business.
• Our proportionate, tech-positive and agile approach to regulation is a game-changer.
• The FCA is open for business, including AI business – our AI Live Testing is available to help firms adopt AI responsibly, giving our firms a competitive advantage.