Britain Needs AI Stress Tests for Financial Services, Lawmakers Say

British lawmakers are urging regulators to introduce artificial intelligence-specific stress tests for the financial sector, warning that current oversight is not sufficient to protect consumers or ensure market stability as AI adoption accelerates.

In a report on AI in financial services, the Treasury Committee said the Financial Conduct Authority and the Bank of England should move beyond a “wait and see” approach. The committee recommended running AI-focused stress tests to help firms prepare for potential market shocks triggered by automated systems.

Committee chair Meg Hillier said she was not confident the financial system could withstand a major AI-related incident, calling the situation worrying as increasingly autonomous systems influence decisions. Around three-quarters of UK financial firms now use AI in core functions such as insurance claims processing and credit assessments.

While acknowledging benefits, the report warned of significant risks, including opaque credit decisions, exclusion of vulnerable consumers through algorithmic targeting, fraud, and the spread of unregulated financial advice via AI chatbots. Lawmakers also highlighted potential threats to financial stability, including reliance on a small number of U.S. technology providers and the risk that AI-driven trading could amplify herding behaviour in markets.

The committee urged the FCA to issue guidance by the end of 2026 on how consumer protection rules apply to AI and what level of understanding senior managers must have of the systems they oversee. The FCA said it would review the report, while the Bank of England said it would consider the recommendations. Separately, Britain’s finance ministry appointed senior figures from Starling Bank and Lloyds Banking Group to help guide AI adoption in financial services.