Artificial intelligence (AI) is rapidly transforming the consumer credit sector, from automated affordability assessments to fraud prevention and customer support tools. While these technologies offer clear efficiencies, the Financial Conduct Authority (FCA) has made it increasingly clear that firms cannot treat AI as a “black box” solution. Governance, accountability and consumer outcomes remain central regulatory expectations.
The FCA’s recent Mills Review highlights the regulator’s intention to better understand how AI could reshape financial services over the coming years. For consumer credit firms and Appointed Representatives (ARs), this is an important reminder that innovation must sit alongside robust compliance frameworks.
One of the key concerns surrounding AI is explainability. Many firms are beginning to use advanced models to assist with lending decisions, customer profiling and risk assessments. However, if a customer is declined credit or offered different terms, firms must still be able to explain how decisions were reached in a fair and understandable way. Existing FCA principles, including Consumer Duty obligations, still apply regardless of whether a decision is made by a person or an algorithm.
Another major area of focus is bias and customer fairness. AI systems are only as reliable as the data they are trained on. Poor-quality or incomplete datasets can lead to unfair outcomes for certain customer groups, creating both regulatory and reputational risks. Firms should therefore regularly review AI-driven processes to ensure decisions remain consistent, transparent and free from discriminatory patterns.
Governance and oversight will also become increasingly important. The FCA expects firms to maintain clear accountability for outsourced technology and third-party providers. Senior management should understand how AI tools are being used within the business, what risks they create and how those risks are monitored. Strong record-keeping and documented oversight processes will be essential if firms are challenged by regulators in the future.
Importantly, the FCA has not introduced AI-specific regulation at this stage. Instead, firms are expected to apply existing rules and principles to emerging technologies. This means businesses adopting AI should focus on embedding strong governance now rather than waiting for future regulation to dictate expectations.
For Appointed Representatives and consumer credit firms, the message is clear: innovation can support growth and efficiency, but only where customer outcomes, transparency and compliance remain at the forefront. Firms that proactively strengthen their governance frameworks today will be better positioned to embrace future technological developments while remaining aligned with FCA expectations.
