Three-quarters of UK financial services firms now use artificial intelligence, up from 58 per cent two years ago, according to a policy paper from Innovate Finance, the industry body for UK fintech. The sharp rise highlights AI’s growing influence in areas such as fraud detection, anti-money laundering, cybersecurity and back-office automation.
About 41 per cent of firms use AI to streamline internal processes, while 37 per cent apply it to strengthen cybersecurity and 33 per cent to improve fraud detection. Adoption remains strongest in operations and IT, but retail banking and insurance are also seeing growth. The report also notes a rising focus on advanced ‘foundation models,’ which now account for 17 per cent of AI use cases, indicating a rapid increase in technical sophistication.
However, regulatory uncertainty continues to hold back AI’s full potential, particularly among smaller firms. Many are not asking for new rules but for clearer guidance on using AI in customer-facing applications. Innovate Finance supports the Financial Conduct Authority’s approach of applying existing frameworks such as the Consumer Duty but is urging regulators to offer more practical, example-led guidance. Suggested measures include clearer compliance case studies, stronger support for innovation and better signposting to resources like the Digital Regulation Cooperation Forum’s AI Hub.
Several initiatives show the UK’s proactive stance on AI in financial services. NatWest’s partnership with OpenAI has led to AI-powered digital assistants that have more than doubled customer satisfaction by improving response quality and reducing reliance on human staff. The project aims to enhance customer experience, improve cost efficiency and reduce financial fraud, showing how AI is becoming part of everyday operations.
In addition, the FCA has teamed up with Nvidia to launch a ‘Supercharged Sandbox’—a new testing environment allowing firms to trial AI technologies from October 2025. This initiative offers advanced computing platforms, AI tools, technical expertise, richer datasets and regulatory guidance, with a particular focus on supporting early-stage firms.
Calls for regulatory reform are growing louder. Innovate Finance CEO Janine Hirt has stressed the need to modernise and simplify current rules, rather than replacing them, to improve clarity, encourage innovation and build consumer trust. With competition rising from other countries adopting progressive AI and fintech regulations, the UK’s leadership depends on embracing regulatory technology to streamline compliance and foster innovation, particularly in areas such as crypto-assets and AI-driven services.
AI is also playing an increasing role in tackling financial crime. Companies such as ComplyAdvantage and Facctum use AI-powered tools combining machine learning and natural language processing to fight money laundering, conduct sanctions screening and detect fraud. Tools like Lucinity’s AI ‘co-pilot’ system help banking staff assess cases more efficiently while maintaining human oversight. However, the expansion of AI capabilities has raised concerns about risk management and governance, as more sophisticated financial crimes and unintended outcomes could emerge. Balancing innovation with risk control remains a central challenge.
To fully unlock AI’s benefits in financial services, Innovate Finance is calling for a comprehensive ‘UK financial tech stack’ that includes digital identity solutions, blockchain regulations, smart data infrastructure and better data-sharing frameworks for fraud prevention. Without swift, coordinated action, the UK risks falling behind rivals investing heavily in ready-to-deploy AI systems.
While the UK’s financial services sector is quickly embracing AI and seeing its transformative potential, progress is being tempered by regulatory ambiguity and the need for stronger innovation support. With targeted reforms, collaborative programmes and a focus on responsible innovation, the UK remains well placed to strengthen its position as a global leader in advanced financial technology.
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