Commenting on the UK Financial Conduct Authority (FCA)’s strategic approach to the use of Artificial Intelligence in the UK financial services sector, Karim Haji, global and UK head of financial services at KPMG, said:
“It’s hard to overstate the potential capabilities of AI for a sector as vibrant and diverse as UK financial services. The BoE, PRA and FCA’s AI strategies all leverage existing regulatory parameters for firms, with enough flexibility for different types of providers to develop use cases for the technology that meet their customers’ specific needs.”
They added:
“Given the rapid pace of innovation and the potential benefits and risks of AI, we’ll only know how successful the approach is after a sustained period of implementation. It will need to be reconsidered if it curtails, rather than promotes innovation and if it doesn’t sufficiently protect consumers from intentional, or unintentional, harm. Organizations can take action now, establishing the governance and AI frameworks aligned to the regulatory outcomes and expectations set out in these letters. These foundations set out by the regulators and effective risk management are key, and very much aligns with how we have been helping clients.”
They also mentioned:
“The regulation of AI will continue to be a big issue for the financial services sector this year. A recent poll we conducted found 81% of sector leaders ranked policies aimed at balancing the opportunities with the risks of AI as important when it comes to government policy ahead of a general election.”
In a separate update, key insights on the FCA’s latest consultation paper on ‘Extending the SDR regime to Portfolio Management’ have also been shared:
Daniel Barry, wealth and asset management risk and regulation lead at KPMG UK, said:
“This is a crucial consultation given that portfolio management services are such an important activity for UK firms – including wealth managers with direct retail customers. It’s been a challenge for the FCA to make the SDR regime work for this part of the market. The final rules for these firms were originally expected in the FCA’s November 2023 policy statement but there was significant pushback from the industry on the original consultation paper.”
They also stated:
“The industry is now scrutinising the detail of the draft rules and considering its response. Although the FCA’s latest proposals would align the requirements for portfolio managers much more closely with the final rules for fund managers, there will be nuances to work through under the proposed labelling regime. For example, portfolios that invest in funds will potentially need to consider whether the chosen sustainability standard should be applied at fund or asset level, and at which level to set and assess KPIs. Retail-focused firms are also facing a short timeline to prepare for the naming and marketing rules – potentially needing to comply by 2 December.”
They concluded:
“Firms managing portfolios for professional clients will likely welcome the possibility of opting into the regime and the more proportionate associated requirements, but some are likely to be disappointed that the scope has been restricted only to UK-domiciled clients and that services provided to funds have been excluded.”