FCA Mills Review: How Will AI Impact Financial Services?

It’s a big question and when it comes to insurance there are several challenges ahead:

Let’s start with the balance between human intervention vs automated decisions on pricing, claims and compensation when things go wrong. Then there’s personal risk factors vs general postcode risks, surely AI can delineate these at long last, so consumers doing the right thing in bad areas are not unfairly punished with higher premiums, or a refusal to quote?

Consumers are also already sick of hearing “all our operators are busy” whilst on hold for 10 minutes, they are fed up with 30% APR rates on pay monthly car insurance plans and they many will soon become annoyed when they discover that perfectly good EVs are being written off because of minor damage, thus increasing every driver’s premiums, including ICE vehicles. 

There is much that AI can do to mitigate these and other issues in the insurance sector. The question is whether the industry regulator and politicians have the willpower to do so. Here’s the word from the FCA;

Led by FCA executive director Sheldon Mills and commissioned by the Board, The Mills Review is the first work of its kind initiated by a regulator globally.

Drawing on views from across the financial services landscape, the report identifies 4 major AI‑driven shifts likely to impact retail financial services: the transformation of firm operations; the evolution of consumer journeys; the reshaping of competition and market power; and the amplification of fraud and cyber risks.

The report finds there is already consumer appetite for the use of agentic AI in personal finance, with research commissioned by the FCA showing that a fifth of people – equivalent to 11 million UK adults – are likely to use AI that can act autonomously within pre-set goals. But consumers in the survey are concerned about trust and control of AI.

The Review concludes that AI is likely to become a defining force in retail financial services, transforming how firms operate, how consumers make financial decisions and how markets function. While AI has the potential to improve access, personalisation and efficiency, it could also amplify risks associated with fraud, cyber security, consumer harm and market concentration.

Executive director Sheldon Mills said: ‘Artificial intelligence will transform financial services by 2030. It creates significant opportunities for consumers, firms and the wider economy. This report sets out a roadmap for how industry regulators and government can prepare for the next phase of AI-driven change in our world-leading financial services sector.’

Key recommendations

The Mills Review also outlines 7 recommendations for the FCA Board and Executive to consider, which are as follows:

1. Secure and adapt the regulatory perimeter.
2. Strengthen system-wide coordination and oversight.
3. Monitor the transition to autonomous models and adapt regulatory frameworks.
4. Scale up the FCA’s AI Lab to support AI models and system innovation in financial services.
5. Enable the foundations for agentic finance.
6. Build and adopt an AI-enabled agentic supervisory model.
7. Develop a trusted public-interest AI-enabled financial capability service.

FCA response

Ashley Alder, Chair of the FCA, said: ‘The Board is enormously grateful to Sheldon for the rich, comprehensive report he’s delivered. His work anticipates the fundamental change agentic AI will bring to financial services. It highlights how consumers and firms can reap significant potential benefits as well how risks can be managed.

‘As is clear in the report, we need to keep pace with a rapidly changing environment and the principles-based, outcomes focussed approach we’ve taken on AI – relying on the Consumer Duty and Senior Managers Regime – has been critical to us doing so. The recommendations build on work the FCA has been doing – not least allowing firms to test their use of AI with us – and our own use of AI to be a smarter regulator, more efficient and effective.’

BROADSTONE COMMENT

David Brooks, Head of Policy at leading independent financial services consultancy Broadstone, commented:

“Pensions are complex, long-term financial arrangements where mistakes can have lasting consequences. While AI has a role to play in improving engagement and understanding, consumers need to treat it as a starting point, not a substitute for professional guidance, scheme information or regulated advice.

“As AI becomes more widely used, improving public understanding of its limitations will be just as important as improving the technology itself. Trust should be earned through accuracy and accountability, not assumed because an answer sounds convincing.

“One of the FCA’s biggest challenges may be protecting consumers from bad pension decisions driven by good-looking AI answers. Generative AI is excellent at sounding authoritative, but not always at being right. When retirement savings are involved, people need to understand that convenience is not the same thing as reliability.”

ARVATOCONNECT COMMENTS

James Towner, Chief Growth Officer at ArvatoConnect: “The FCA has been clear that it wants firms to embrace the opportunities presented by AI rather than wait to be handed a prescriptive rulebook. With 1 in 5 UK adults already open to using AI to manage parts of their finances, the shift the FCA describes, in how firms operate, how consumers make decisions and how markets compete, is well underway.  

“AI has the potential to reshape everything from customer service and fraud prevention to operational efficiency, with huge benefits in personalising services and spotting vulnerability. But if firms don’t lead with the customer outcome, and innovation races ahead of consumer protection, the result will be exclusion and entrenched bias. Whether this balance is being struck is under a spotlight today. Our research suggests that in large portions of the financial services industry, it isn’t. More than three-quarters of finance leaders believe their AI strategy could exclude vulnerable customers, yet only a quarter test their systems against real-life vulnerability and build clear routes to a human

“The Review outlines what people want before they will trust AI with their money: clear protection when things go wrong and the ability to reach a human. As AI increasingly has a role to play in the most sensitive and defining decisions in our lives organisations must remember that access is about far more than price. For someone facing financial difficulty, ill health or a major life event, empathy, context and human judgement are often the service itself, not optional extras or premium add-ons.”