The main City regulator fears being left behind by a new wave of technological innovation that could increase the risk of financial firms making bad decisions and going bust, according to its latest business plan.
The Financial Conduct Authority said that developments, which include artificial intelligence and blockchain technology for financial transactions, could race ahead without adequate regulations in place, potentially undermining the strength of London as a financial centre.
Andrew Bailey, the FCA’s chief executive, said Brexit continued to soak up resources, and the regulator needed more funds dedicated to upgrading regulations.
He added: “The more money we have to spend on Brexit, the less we have to spend on other areas. I am sure I am not the only chief executive of a public body saying that Brexit is consuming bandwidth that could be usefully used on other things.”
Over the next 12 months the FCA expects to spend £22m on Brexit preparations, down from £30m last year. Further delays to an article 50 leaving date could push that figure higher, adding to the organisation’s budget constraints.
The FCA said it would sponsor debates with “key stakeholders so that we can keep pace with the developments taking place in the markets that we regulate and in wider society”.
Banks and insurers are among a wide range of financial firms spending millions on artificial intelligence as a way to speed up decision-making and cut staff.
Companies are also developing ways to buy and sell financial products using blockchain technology, which bypasses the traditional network established by banks over the past 40 years.
The FCA report said: “Technology change brings risks to the operational resilience of our financial system and to the accountability of firms for the effects of decisions taken by machines.
“It also brings risks to consumers who may be enabled to take decisions too quickly or with inadequate advice; may be exposed to more financial scams; or may struggle to participate in a technology-driven world.”
It continued: “Technology change also brings risks to regulators, who may lag behind developments or lack skills and resources to match the changing risk landscape.
“The global context is also changing as the United Kingdom leaves the European Union and we adapt to shifts in global power and growth. These changes can bring risks to UK markets and consumers if they become exposed to gaps in global regulation, if the changes lead to reduced competition in the UK or if they result in less effective cross-border coordination between regulators.”
Bailey is also under pressure to strengthen City regulations after a series of scandals that left the FCA powerless to react. Last year it admitted it was unable to pursue Royal Bank of Scotland over the mistreatment of small business customers struggling after the banking crisis.
The regulator said it lacked the powers to discipline RBS for misconduct, despite the “widespread inappropriate treatment” of up to 12,000 small businesses by the bank’s global restructuring group between 2008 and 2013.
Bailey is due to report later this year on the FCA’s remit and whether it should be extended to cover a broader set of financial products and customers, including small businesses.
