Fulfilling consumer duty through artificial intelligence: insights from the retail banking sector in the United Kingdom

The Financial Conduct Authority (FCA) in the UK launched the Consumer Duty in October 2023. This regulation is one of the first and significant initiatives which explicitly prioritise consumer interests in banking regulation, aiming not only to promote bank stability but also to transform regulatory tools into mechanisms that foster both consumer loyalty, leading to stable profits for banks. However, bank regulation on AI has overlooked its impact on consumers and their expectations on bank service, this paper explores how AI should be regulated to fulfill the Consumer Duty. A gap analysis employing four thematic factors – User, Regulator, Social Acceptance, and Bank Factors – reveals three key regulatory gaps in using AI as a consumer protection mechanism: a lack of specific implementation guidelines, opacity in AI processes, and inadequate regulatory tools and expertise. The paper advocates for the development of discipline-specific AI ethics frameworks, enhanced AI literacy programs for both bank staff and consumers, and a “sunshine test” mechanism for evaluating AI applications. This framework signifies the “regulator factor” and enforces a consumers-centric approach vital in building an efficient financial services landscape in the digital era.