Strategic approach to AI: UK government picks the brains of the financial regulators

On 15 February 2024, correspondence from the Department for Science, Innovation and Technology to the FCA and the Bank of England was published. This follows the publication of the UK government's response to the consultation on its March 2023 AI white paper. As we reported last week, the response confirmed the government's sector-based approach to AI regulation (at least for now!), informed by five AI principles and noted that regulators would be asked to outline their approach to AI regulation by the end of April.

While the government has not prescribed a particular form of response from the financial regulators, it has indicated a number of areas that they may wish to address:

• Their views on how AI applies to their regulatory remit including the legislation underpinning this remit (ie the Financial Services and Markets Act 2000 and associated financial services legislation) and its relevance in the context of AI.
• What they are doing to adopt the AI principles set out in the white paper including examples where possible.
• A summary of guidance they have issued or expect to issue on the interaction of the principles with existing legislation and what steps firms that are regulated should take in line with the principles.
• The work they are doing to understand, assess and manage current and emerging AI-driven risks relevant to the financial sector and the scope of the regulators' responsibilities. The government notes that this may range from social harms (for example, bias and discrimination), to broader harms such as cyber security, privacy risks, and potential for AI misuse from bad actors.
• Interactions and potential overlap between their remit and other regulators' and action they have taken to collaborate with other regulators to identify and tackle AI-related issues that cut across regulatory remits.
• Details of their current capability to address AI risks within their regulatory remits and how this compares with their assessment of the capabilities they require to regulate AI effectively within the financial sector, including an analysis of resources (people, financial and expertise).
• Their plans and activities over the coming 12 months, which should include what they are doing to address any gap in capabilities identified above. It may also include (but need not be restricted to) any planned risk assessment, tools and/or guidance they are preparing, planned stakeholder and international engagement. The government says it would be useful to understand how the regulators may prioritise their resources to support the work planned in the next 12 months.