Seventy-five per cent of UK financial services firms are already using AI, up from 58 per cent just two years ago, yet uncertainty about compliance is slowing progress, according to a new policy paper from industry body Innovate Finance.
Another 10 per cent of firms say they plan to adopt AI in the next three years, a sign that usage is growing quickly. Common use cases include fraud detection, anti-money laundering, cybersecurity and back-office automation.
Around 41 per cent of firms report using AI to streamline internal processes, while 37 per cent cite cybersecurity as a primary application, and 33 per cent focus on improving fraud detection. Adoption is highest in operations and IT, followed by retail banking and insurance.
Innovate Finance’s ‘Artificial Intelligence: Unlocking the potential of UK Financial’ paper also notes a growing interest in more advanced models, with so-called ‘foundation models’ now accounting for 17 per cent of AI use cases, up significantly in a short time.
But while technical capability is increasing, firms – especially smaller ones – still want clearer guidance on where the regulatory boundaries lie, especially when deploying AI tools in customer-facing roles.
Rather than calling for new rules, the paper supports the Financial Conduct Authority’s current approach of applying existing frameworks such as the Consumer Duty. But it urges regulators to offer more practical support: clearer examples of compliant AI use, more visible backing for innovation and better signposting of resources like the Digital Regulation Cooperation Forum’s AI Hub.
Innovate Finance also recommends broader policy action, including developing a full ‘UK financial tech stack’ covering smart data infrastructure, digital ID, blockchain regulation and data-sharing for fraud prevention, to support AI deployment across the sector.
Case studies from Innovate Finance members such as Starling Bank, YouLend and Bonsai illustrate current use cases in AI-powered financial planning, embedded lending and conversational finance tools. But the paper warns that without faster action to build industry and public confidence, the UK risks losing ground to international competitors investing heavily in deployment-ready AI frameworks.
