The UK’s Financial Conduct Authority (FCA) is rethinking how financial regulation should operate in the age of AI, according to a speech by chief executive Nikhil Rathi.
Speaking at techUK’s Agents of Change: Generative and Agentic AI in Financial Services 2026 event, Rathi said financial services will be central to making the UK a world-leading AI economy. He said the sector can provide the capital, infrastructure, and trust needed for AI to scale across the wider economy.
Rathi said more than 80% of financial services firms are already using or adopting AI, shifting the policy focus from adoption to large-scale deployment. He said AI is challenging the assumptions on which markets and regulation were built, making it necessary to preserve trust, competition, and resilience as technology moves faster than existing frameworks can keep pace.
The FCA chief identified two major scaling opportunities. The first is agentic AI, which Rathi said could evolve beyond summarisation and task automation into systems capable of coordinating workflows and executing transactions.
In retail markets, Rathi said agentic systems could support smarter bill management, personalised investment strategies, and reduced friction. In wholesale markets, they could support liquidity management, trading workflows, and other market functions.
Rathi stressed that accountability for regulated activities and their outcomes must remain clearly assigned, regardless of the degree of automation. He said investors may be reluctant to delegate important decisions to systems they do not understand, making human oversight and consumer confidence essential.
Rathi also identified tokenisation as a second major trend shaping financial markets. Rathi said tokenisation could lower costs, reduce risk, and unlock new services by creating more automated and programmable infrastructure for agentic finance.
He noted that banks are already piloting tokenized deposits and said the FCA had approved Baillie Gifford, alongside Bank of New York Mellon, to launch the UK’s first natively tokenised authorised fund.
Rathi said rapid AI progress raises fundamental questions for regulation. He argued that legislation alone cannot keep pace with technological change, requiring the FCA to evolve from a traditional rule-maker into a regulator focused on continuous supervision, stewardship and resilience.
The FCA is exploring agentic AI as a ‘first responder’ to speed up wholesale market monitoring. Rathi said the regulator could use its technology, large datasets, and supervisory judgement to tackle market abuse faster.
He said traditional rule-making will still be needed in some areas, but will not work everywhere. The FCA’s role will increasingly involve both stewardship and supervision, helping firms and markets navigate technological change and acting before legislation catches up.
Rathi also said AI will change competition in financial services. He said AI can lower barriers to entry and allow challengers to grow quickly, while some incumbents may fall behind.
The FCA chief said the regulator’s role is not to protect incumbents, but to ensure competition works in consumers’ and the economy’s interests. He said the FCA expects to use system-wide powers more frequently as part of its regular toolkit.
Operational resilience was another major theme of the speech. Rathi said financial services increasingly depend on cloud providers, model providers, data providers, and other parts of the AI stack, creating both opportunities and risks for systemic resilience, market integrity, and financial crime.
He said fraud increasingly sits at the intersection of financial services, technology, and telecoms. UK Finance’s Annual Fraud Report suggests the UK lost almost £1.3 billion through payment fraud last year, with two-thirds of authorised fraud cases linked to social media sites and messaging platforms.
Rathi said frontier AI could further magnify risks. Faster and more capable models could help firms identify vulnerabilities and strengthen defences, but could also help attackers move more quickly.
Boards and leadership teams must understand these risks, he said. Firms need to map and govern dependencies on model providers and other third parties, as the Critical Third Parties regime becomes more important.
Rathi said resilience will increasingly become a national security and system-wide challenge. He said no single firm, regulator or sector will be able to see all risks, making better information sharing essential.
The FCA is supporting AI adoption through tools including its Supercharged Sandbox, AI Lab, and the AI Consortium with the Bank of England. Rathi said these initiatives are intended to help firms build, test, and scale AI safely in UK financial services.
He said the FCA will publish more work soon, including the Mills Review on how AI could reshape retail financial services and later guidance on good and poor AI practice.
Rathi concluded that the key question is no longer whether AI will reshape financial services, but whether the UK can become the preferred location for developing and deploying AI safely, responsibly and at commercial scale. He said regulation must support innovation while keeping markets competitive, resilient, and fit for technological change.
Why does it matter?
The speech signals a broader shift in financial regulation from static rule-making towards continuous supervision in response to rapidly evolving AI technologies. As agentic AI, tokenisation and frontier models become more deeply embedded in financial services, regulators are increasingly focusing on governance, operational resilience, competition and accountability rather than relying solely on traditional legislative approaches.
It also illustrates how AI is becoming a strategic issue for financial stability and economic competitiveness. By combining regulatory sandboxes, supervisory innovation and collaboration with industry, the FCA aims to encourage responsible AI adoption while managing emerging risks related to fraud, third-party dependencies, cybersecurity and market integrity. The UK’s approach may influence how other financial regulators adapt to AI-driven transformation.
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