AI Governance for UK Financial Services

UK financial services AI governance is developing through existing regulatory frameworks rather than new AI-specific FCA rules, with the Consumer Duty and SM&CR requiring fair customer outcomes and clear senior accountability, the PRA applying model risk management and operational resilience expectations, and UK GDPR Articles 22A–22D imposing safeguards for significant solely automated decisions. The 2026 Mills Review found that SM&CR remains broadly suitable for lower-autonomy AI but identified greater accountability challenges when systems approve or execute decisions with limited human involvement, prompting calls for clearer guidance on senior managers’ “reasonable steps.” Firms are expected to maintain inventories of AI systems, assign named owners, assess autonomy and customer impact, test models and agents before and after deployment, document human oversight, prepare incident and exit plans, and provide boards with evidence of risks, controls, and outcomes. Third-party AI tools remain a major concern because responsibility stays with regulated firms despite the new critical third-party regime and material outsourcing reporting requirements beginning in March 2027. The article also highlights agent-specific security threats, such as prompt injection, data leakage, and excessive tool permissions, and argues that governance and cyber resilience controls should address these alongside conventional model risks.

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