FCA and ICO Collaborate on Statutory AI Code of Practice for Firms

In a significant regulatory development, the Financial Conduct Authority (FCA) of the United Kingdom has announced plans to create a statutory code of practice specifically addressing the use of artificial intelligence (AI) and automated decision-making within regulated firms. This initiative, developed in collaboration with the Information Commissioner’s Office (ICO), aims to balance the promotion of innovative practices with ensuring robust consumer protection and privacy safeguards.

This announcement comes in the wake of ongoing concerns regarding the lack of comprehensive guidance for firms navigating the complexities of AI integration. According to the FCA, many regulated entities have expressed uncertainty regarding their responsibilities and the potential risks associated with AI technologies. Current guidance has been described as inadequate; the only substantial resources available include a toolkit from the ICO designed to help assess risks related to AI systems. However, this toolkit has been criticized as insufficient given the rapid evolution of AI technologies and their applications in various sectors.

Dr. Sarah Johnson, a Professor of Computer Science at the University of Cambridge and an authority on AI ethics, commented on the necessity of such regulations, stating, "The rapid advancement of AI is outpacing regulatory frameworks. The lack of clear guidance has left firms in a difficult position, often choosing between innovation and compliance."

Historically, the FCA and ICO have attempted to encourage responsible AI adoption through joint initiatives. However, the absence of specific standards has resulted in a regulatory vacuum. The FCA's previous efforts have included high-level statements and exploratory discussions regarding firms' responsibilities, yet practical tools for implementation remain scarce. This gap has led firms to face criticism for inaction in adopting AI, even as they risk legal repercussions from potential failures in AI deployment.

To address these challenges, the FCA recently conducted a roundtable with industry leaders in May 2025, leading to the decision to formulate a statutory Code of Practice. This code aims to establish clearer expectations and mitigate regulatory uncertainties surrounding AI technologies. The FCA is also enhancing its AI Lab initiative, which provides a controlled environment for firms to develop, test, and evaluate AI technologies effectively. This environment will allow firms to trial AI in real-world settings, fostering innovation while ensuring regulatory oversight.

The implications of the FCA’s proposals are substantial. The establishment of a formal Code of Practice marks a pivotal shift from abstract regulatory principles to practical support for firms implementing AI. As noted by Rekha Cooke, Partner at Kennedys Law LLP, "A well-defined code will provide firms with a clearer framework for compliance, ultimately benefiting both businesses and consumers."

While the specifics of the Code of Practice remain under development, it is anticipated to offer a comprehensive approach to AI deployment, emphasizing accountability and consumer protection. Furthermore, the FCA's AI Lab initiative has been praised for its potential to accelerate AI adoption, enabling firms to identify risks and ensure robust systems before widespread implementation.

The regulatory landscape surrounding AI is rapidly evolving, and the FCA's proactive stance reflects an increasing recognition of the need for balanced oversight. As firms await the finalization of the Code of Practice, they are encouraged to utilize existing resources provided by the FCA and ICO to navigate current guidelines and minimize exposure to potential liabilities.

The forthcoming Code of Practice is poised to reshape the AI regulatory environment, with implications for innovation, risk management, and consumer trust. Moving forward, both the FCA and ICO are expected to engage with stakeholders to refine the code and address the ongoing challenges posed by AI technologies in regulated sectors. The industry's anticipation for this code is palpable, as it promises to clarify expectations and enhance the responsible use of AI in the financial services sector.