UK banking sector faces ‘AI-washing’ legal warning
The UK’s banking sector is facing a new wave of regulatory AI warnings as bullish lenders race to rapidly beef up their tech capacity.
Rosehana Amin, cyber and litigation partner at Clyde & Co LLP, warned banks may face a significant legal liability over misleading markets over their use of AI.
Speaking at the City and Financial Global’s Data, AI and the future of Financial Services summit, Amin said: “There are AI-washing players that have been growing in the last few years.”
“These relate to misrepresenting or exaggerating capabilities of AI, which is leading to scrutiny by courts and regulators.”
The UK’s financial watchdog launched the Mills Review at the beginning of the year to examine how firms are marketing their AI capabilities.
While no individual UK bank has been publicly named in an enforcement action yet, the Financial Conduct Authority’s inaugural Enforcement Watch publication highlights that “deliberately misleading the FCA, consumers, or the markets” through tech claims is now a priority for their dual-track criminal and regulatory investigations.
Amin said transparency would likely be a “core principle” in how the FCA “judges firms on AI”.
‘Flashy’ AI in banks to get transparency tested
In October, the CRIF’s “Banking on Banks” report found while nearly 70 per cent of UK banking professionals say their firms use AI, over half of the solutions being marketed were flagged by industry experts as “flashy but untested”.
Amin said it will be “important to have evidence-based grounds of AI use and capabilities”.
“Transparency, explainability, and accountability are core principles to adhere to rather than aspiring.”
Analysts have pencilled banks in as top winners of the AI boom, but cautioned they would be challenged by shareholders to sell their narrative.
“This may be the year the market makes up its mind that banks are likely to be significant beneficiaries of AI, particularly as relates to forward efficiency,” analysts at UBS said.
They added that banks would be “pressed hard this year” to share a “coherent financial story for AI implementation: what is being spent now and what it means for the future shape of expenses overall and headcount in particular.”
But Amin warned as banks tout their AI growth journey it is “so important… to ensure disclosures around the use of AI are accurate while strengthening procedures for quality control”.
Three of the ‘big four’ London-headquartered banks occupy a spot on the top 20 Evident AI index, which serves as a global benchmark for AI integration in the banking sector. HSBC leads the City lenders at eighth place, followed by Lloyds at 15 and Natwest at 16.