The main City regulator fears being left behind by a new wave of technological innovation that could increase the risk of financial firms making bad decisions and going bust, according to its latest business plan.
The Financial Conduct Authority warned developments, which include artificial intelligence and the introduction of blockchain technology for financial transactions, could race ahead without adequate regulations in place, potentially undermining the strength of London as a financial centre.
The FCA’s chief executive, Andrew Bailey, said Brexit continued to soak up resources, and the regulator needed more resources to dedicated to upgrading current regulations.
“Dealing with Brexit will be the most immediate challenge we face. But this plan also commits us to a stretching programme of work across the financial sector.
“In order to ensure we are a regulator that continues to serve the public interest, we need to adapt to the ever-changing environment.”
He said the FCA would sponsor debates with “key stakeholders so that we can keep pace with the developments taking place in the markets that we regulate and in wider society”.
Banks and insurers are among a wide range of financial firms spending millions of pounds on artificial intelligence as a way to speed up decision-making and cut staff.
Firms are also developing ways to buy and sell financial products using blockchain technology, which bypasses the traditional network established by banks over the last 40 years.
The report said: “Technology change brings risks to the operational resilience of our financial system and to the accountability of firms for the effects of decisions taken by machines.
“It also brings risks to consumers who may be enabled to take decisions too quickly or with inadequate advice; may be exposed to more financial scams; or may struggle to participate in a technology-driven world.
“Technology change also brings risks to regulators, who may lag behind developments or lack skills and resources to match the changing risk landscape,” it said.
“The global context is also changing as the United Kingdom leaves the European Union and we adapt to shifts in global power and growth. These changes can bring risks to UK markets and consumers if they become exposed to gaps in global regulation, if the changes lead to reduced competition in the UK or if they result in less effective cross-border coordination between regulators.”
Bailey is also under pressure to strengthen City regulations after a series of scandals that left the regulator powerless to react. Last year after the FCA admitted it was unable to pursue Royal Bank of Scotland over the mistreatment of small business customers struggling after the banking crisis.
The regulator said it lacked the powers to discipline RBS for misconduct, despite the “widespread inappropriate treatment” of up to 12,000 small businesses by the bank’s global restructuring group (GRG) between 2008 and 2013.