FCA warns investors lack protection for AI advice

The Financial Conduct Authority has issued a warning to British consumers who rely on artificial intelligence for investment guidance, stating that they may not be protected if their decisions result in financial loss. The regulator highlighted that a significant portion of the public is underestimating the risks associated with unregulated digital advice as the use of online chatbots for financial planning continues to rise.

Recent research conducted by the FCA indicates that four in five inexperienced investors have used AI tools to assist with their investment decisions. This trend is particularly pronounced among younger demographics, with more than 50 per cent of individuals aged 18 to 40 expressing trust in AI tools to make decisions on their behalf. The shift towards digital assistance appears to be driven by the inaccessibility of traditional financial advice for many people, who are increasingly turning to chatbots as a more immediate and available alternative.

Despite the growing reliance on these technologies, the FCA clarified that it does not regulate AI-generated financial information. However, 44 per cent of Britons incorrectly believed that the watchdog did oversee such content. Furthermore, nearly a third of respondents assumed they could seek compensation from the Financial Services Compensation Scheme or the financial ombudsman if AI advice led to harm. The regulator emphasised that because AI falls outside its regulatory scope, it cannot protect customers from potential damage caused by these tools, which include popular platforms such as ChatGPT and Google Gemini.

Lucy Castledine, director of consumer investments at the FCA, noted that while AI can assist with researching companies and understanding jargon, users must understand their level of protection and continue to exercise their own judgement. Financial advisers have echoed these concerns, arguing that AI cannot replicate the tailored advice provided by professionals. Rob Hillock, head of personal financial planning at Broadstone, stated that confidence in AI is running ahead of understanding, as the technology cannot necessarily provide the personalised assessment required for suitability based on an individual’s objectives and risk appetite.

Graeme Devlin, head of risk, regulation and compliance at Capco, urged wealth managers to move beyond viewing this as an education problem. He argued that since AI provides immediate answers, the professional proposition must offer more than just information. Advisers need to understand the client’s wider financial position and provide ongoing accountability, focusing on asking better questions and challenging assumptions rather than simply repeating information that clients can already access through technology.