UK Lawmakers Call for AI Stress Tests on Banks as Risks Mount

Britain’s financial regulators should start stress-testing the risks posed by artificial intelligence because their current wait-and-see approach leaves the public and economy in danger of “serious harm,” a group of lawmakers warned.

The Bank of England, the Financial Conduct Authority and the Treasury are failing to keep up with the threat from AI, which is now used by more than three quarters of U.K. financial services firms, Parliament’s Treasury Select Committee concluded in a new report. One obvious place to start is assessing the potential fallout from AI-driven market shocks, it said.

Financial institutions are rapidly adopting AI for all kinds of services, from helping devise investment strategies to automating administrative functions and processing insurance claims. The committee said there may be “considerable benefits to consumers” but warned reliance on AI and cloud providers is a new stability risk.

“Based on the evidence I’ve seen, I do not feel confident that our financial system is prepared if there was a major AI-related incident and that is worrying,” TSC Chair Meg Hillier said. “I want to see our public financial institutions take a more proactive approach to protecting us against that risk.”

The Members of Parliament called on the FCA, the consumer regulator, to publish guidance on the guardrails around AI in the financial sector by the end of the year, including identifying the individuals responsible. Cloud providers like Amazon Web Services and Google Cloud should also be designated critical industries to improve regulatory oversight, they added.

Both cloud providers told MPs during the inquiry that they expect to be brought into the regulators’ “critical third parties regime,” with Google revealing it is already prepared, but the Treasury has yet to act. Underlining the threat, AWS was hit by a massive outage in October during the inquiry that knocked several companies, including Lloyds Banking Group, offline.

Industry specialists warned that AI trading amplifies herding and therefore increases financial stability risks as well as heightening cyber security vulnerabilities. Jonathan Hall, an external member of the BOE’s Financial Policy Committee, told lawmakers that AI-specific market stress test would be valuable.

The Treasury responded with the announcement of two new “AI Champions” to spearhead the safe roll-out of AI in financial services. Harriet Rees from Starling Bank and Rohit Dhawan from Lloyds Banking Group will help firms seize opportunities “while protecting consumers and financial stability.” They will report to Economic Secretary to the Treasury Lucy Rigby.

A Treasury spokesman said the government wants to “strike the right balance between managing the risks posed by AI and unlocking its huge potential.” Both the BOE and the FCA said they welcomed the TSC report and will consider the recommendations “carefully.”

Top photo: The City of London seen from Tate Modern in London, U.K., on Tuesday, Nov. 18, 2025. Photographer: Jos Sarmento Matos.