Why AI Requires a Different Regulatory Approach

Speaking at the Financial Times Global Banking Summit last week, Nikhil Rathi, CEO of the UK Financial Conduct Authority (FCA), said the rise of AI requires a “totally different” regulatory approach.

Rathi explained that the FCA will not “come after you every time something goes wrong,” emphasising the need for a “different relationship between regulator and regulated.” He said the agency has avoided creating new AI-specific rules because “the frontier of that technology is moving every three to six months,” making traditional regulatory methods ineffective.

He warned that the EU’s recent pause of parts of its AI Act shows the risks of detailed rules that quickly become outdated. According to Rathi, the UK’s relatively weak productivity, rapid technological change, and growing security threats have pushed the FCA to rethink how it operates.

“The environment has changed; therefore, we need to change,” Rathi said. “If we do not become rapid adopters of new technology, how are we going to go after that productivity challenge that we have? Go and innovate — we want you to use that technology.”

Rathi noted that financial institutions are already applying AI in fraud detection, customer service, trading, and research. He also highlighted the FCA’s Consumer Duty rules, which seek to promote good consumer outcomes and allow flexibility without writing new regulations explicitly addressing AI.