Growing regulatory challenges faced by organizations adopting AI and other innovative technologies have been highlighted in a joint letter from the FCA and the Information Commissioner’s Office (ICO). The document acknowledges the “broad areas of regulatory uncertainty” hindering progress and outlines a commitment to collaborative efforts to provide greater clarity and support growth.

The core message of the letter revolves around addressing the complexities arising from the intersection of data protection and financial regulation in the context of AI. Organizations are grappling with questions surrounding:

• Data usage and privacy: How to responsibly utilize data for AI development and deployment while adhering to data protection laws, including transparency, fairness and accountability.
• Algorithmic bias and fairness: Ensuring AI systems are free from discriminatory biases and operate in a fair and ethical manner, particularly with financial services where decisions will have a significant impact.
• Regulatory interpretation: Seeing clarity on how existing regulations apply to emerging AI technologies and innovative business models.
• Accountability and explainability: Establishing clear lines of responsibility for AI-driven decisions and ensuring that these decisions are transparent and explainable.

Collaborative approach

To tackle these challenges, the FCA and ICO have pledged to work closely with industry stakeholders. This collaborative approach aims to:

• Provide clearer guidance: Develop and publish joint guidance that clarifies the regulatory expectations for AI adoption, addressing the specific areas of overlap between data protection and financial regulation.
• Foster dialog: Create platforms for open dialog and knowledge sharing between regulators and industry, facilitating a deeper understanding of the challenges and potential solutions.
• Support innovation: Offer regulatory sandboxes and other initiatives that enable organizations to test and develop innovative AI solutions in a controlled environment, while ensuring compliance with relevant regulations.
• Enhance regulatory cooperation: Strengthen coordination between the FCA and ICO to ensure a consistent and coherent regulatory approach to AI.

Next steps

The letter specifically calls for feedback from industry on areas where greater regulatory support is need to enhance innovation. This includes pinpointing the specific data protection and financial regulation pain points that are hindering the adoption of new technologies.

The FCA and ICO are hosting a roundtable discussion on May 9 to further explore these issues. Interested parties are invited to contact stakeholders@fca.org.uk by March 21.

Matt Worsfold, partner – Data & Analytics, Ashurst Risk Advisory, said: “The FCA’s recent Dear CEO letter on AI adoption written in conjunction with the ICO, and the intention to host an industry roundtable in May, is the latest in a period of engagement with the industry stakeholders on the topic of AI.

“With a focus on growth and innovation, the ICO and FCA are looking to understand the barriers to AI adoption, and in turn what needs to be done around clarifying both of the regulatory regimes in order to drive the use of AI, and the realization of the benefits it can bring to financial services firms and ultimately their customers, whilst balancing good customer outcomes and protecting personal data.”