Deregulation, AI spending surge and UK fraud law reshape financial services
The financial services industry faces three converging forces in early 2026: sweeping deregulation in the U.S., accelerating AI investment globally, and new fraud liability rules in the UK that affect organizations worldwide.
U.S. regulators ease compliance burdens
Federal regulators are pursuing one of the most significant deregulatory periods since the aftermath of the 2008 financial crisis. The Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation are developing proposals to modify the four pillars of regulatory capital requirements for large banks: stress testing, supplementary leverage ratio, Basel III risk-based capital requirements, and the G-SIB surcharge. These proposals are expected in late March.
The Securities and Exchange Commission is pursuing three separate deregulatory initiatives. SEC Chairman Paul Atkins expects the Commission to consider a token taxonomy and new framework for crypto asset securities under Project Crypto. He has also directed a comprehensive review of Regulation S-K-which governs corporate disclosures-with a comment deadline of April 13, 2026, aimed at reducing disclosure burdens for public companies. The SEC is also prioritizing a proposal to shift from quarterly to semi-annual reporting.
As federal oversight eases, some state legislatures are increasing their own enforcement and rulemaking, creating an inconsistent system. States argue that federal deregulation may increase systemic risk and harm consumers.
The UK government's Mansion House Reforms in July 2025 took a different approach, encouraging growth-focused regulation. The removal of prudential regulation SS20/15 affected the building society sector and streamlined conduct-related rules. Both U.S. and UK agencies are expected to preserve core prudential, consumer protection, and financial crime prevention standards despite the deregulatory push.
Banks racing to deploy generative AI
Generative AI and LLM spending across financial institutions globally reached an estimated $45 billion in 2024 and is projected to reach $126 billion by 2028, according to Bloomberg. Banks account for roughly two-thirds of that growth.
Seventy percent of banks expect firm-wide deployment of generative AI within two to three years, up from 24% today. Despite this momentum, many firms struggle to convert experimentation into measurable returns. MIT research found that only 5% of generative AI pilots deliver measurable business returns. Data quality issues, skills shortages, integration challenges, and legacy systems that consume 60 to 70% of technology budgets are the main obstacles.
Agentic AI-autonomous agents capable of performing multi-step processes like credit underwriting, fraud investigations, or treasury operations-is emerging as the next frontier. Recent rollouts show AI agents can reduce work for intermediaries and advisers, pointing to lasting cost changes and a sharper focus on where humans add value. Scaling these agents requires re-architecting operating models and strengthening governance to manage new risk categories.
UK and U.S. take different regulatory paths on AI
The UK's Financial Conduct Authority announced in January 2026 a review into how AI will transform retail financial services, focusing on market evolution, consumer impact, and how regulators must adapt. The FCA's AI Live Testing initiative and Supercharged Sandbox are designed to encourage innovation while mitigating risks before deployment.
The FCA and Bank of England are applying existing conduct and prudential frameworks without announcing AI-specific rules, emphasizing accountability, explainability, and consumer protection.
The U.S. has no comprehensive AI regulatory framework for financial services. Federal regulators oversee AI use primarily through existing laws-anti-discrimination and consumer protection statutes-and agency guidance. In early 2025, the administration revoked prior AI guardrails, aiming to ease federal oversight. State-level laws have emerged to address financial services implications of AI, creating another patchwork system.
UK fraud law creates global liability for large organizations
The new corporate offense of failure to prevent fraud (FTPF) under the Economic Crime and Corporate Transparency Act 2023 took effect in September 2025. Large organizations worldwide can now be prosecuted and face unlimited fines if an employee, agent, subsidiary, or other "associated person" commits a specified fraud offense intending to benefit the organization.
An organization's only defense is proving it had reasonable fraud prevention procedures in place at the time of the offense. The law defines large organizations as those meeting at least two of these thresholds at any point in the preceding financial year:
- More than 250 employees
- Turnover over £36 million (approximately $48 million)
- Total assets over £18 million (approximately $24 million)
Regulators specify six principles that should inform reasonable fraud prevention procedures: top-level commitment from leadership, risk assessment, proportionate procedures, due diligence, communication, and monitoring and review.
The FTPF marks a fundamental shift in how organizations manage economic crime risk. Boards and senior leaders should ensure teams embed proportionate fraud prevention procedures and maintain clear accountability and strong governance throughout the organization. This applies to any global group with a UK nexus, making compliance a priority for AI for Finance professionals and compliance officers alike.
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