As EU lawmakers refine the AI Act, financial services firms must navigate a shifting landscape where compliance, innovation and risk management collide. Gordon Baggott, Director of AI at 4most, explores for us how evolving rules could unlock AI’s potential for firms – or leave them stuck at the starting line.
Artificial Intelligence (AI) is reshaping financial services, but firms are progressing at different rates. For banks and insurers, the key challenge is not just adopting AI but moving beyond pilot projects to obtain real benefits at scale. This shift is often hampered by unclear regulations and compliance concerns which are further complicated by the complex risk environment that financial institutions operate in.
The heavy burden of documentation, mandatory transparency and strict compliance checks can slow innovation considerably. Additionally, firms face pressure to manage AI risks, such as bias, complexity and privacy issues. Together these factors explain why some companies remain hesitant to fully embrace AI.
The stakes are high. Financial firms must balance the benefits of AI with strict rules that protect customers and markets. Without clear regulatory guidance and workable frameworks investment in AI risks stagnation or uneven adoption across the sector.
AI Act changes sought by financial firms
Banks and insurers have been vocal in their push for a more balanced approach to the EU’s AI Act. One key request is to narrow the definition of “high-risk” AI – especially for general-purpose AI tools that do not fit neatly into traditional categories.
They have also called for reductions in documentation and real time monitoring requirements arguing that these can be disproportionate and discourage innovation.
Moreover, financial services firms want more flexible conformity assessments and a reconsideration of strict liability rules, which could expose organisations to excessive risk.
Their message is clear: while safeguarding customers, regulation must also support innovation and growth rather than stifling AI deployment with excessive red tape.
What rule changes mean for businesses
AI is transforming financial services, but firms face barriers moving beyond POC’s to scaled applications due to vague regulations and complex compliance demands. Extensive documentation, transparency obligations, and oversight contribute to cautious adoption despite clear benefits.
Financial firms must weigh AI’s advantages, such as improving customer experience and operational efficiency, against regulatory requirements. Without clear, workable frameworks, AI investment may stall or develop unevenly across the industry.
Relaxing the AI Act and related regulations could accelerate AI deployment by reducing the burden of exhaustive documentation and real-time monitoring, allowing firms to scale solutions more confidently. This would enable many UK and European companies to move beyond pilots and implement AI-powered agents at scale, unlocking operational improvements and competitive advantages.
Narrowing the “high risk” classification would ease regulatory hurdles for general purpose AI tools, fostering faster experimentation and adoption of rapidly developing technologies such as agentic AI. Businesses would face fewer delays in launching safe, customer-facing AI applications, as well as reduced exposure to legal uncertainties related to liability. More flexible conformity assessments would lower compliance costs and legal uncertainties, helping smaller firms compete with incumbents.
Together these changes would enable financial services companies to more easily scale AI powered solutions that boost revenue, cut costs and enhance compliance. This includes more accurate AI driven risk management, underwriting and agentic AI powered customer service benefits previously delayed by regulatory complexity.
Comparisons with UK regulation
The UK has set a growth-focused approach to AI governance for financial services. The Government’s AI Opportunities Action Plan encourages innovation and growth while protecting consumers, avoiding overly technical and paving the way for less rigid rules that could slow development and adoption.
UK-based firms benefit from technical support such as the Financial Conduct Authority’s Regulatory Sandbox, which allows real-world testing of AI tools under regulatory guidance – accelerating product development and deployment.
In contrast, the EU’s original AI Act proposals were more prescriptive, making AI adoption more cautious and complex for financial institutions. Recent adjustments bring the EU closer to the UK’s stance by emphasising flexibility, clearer definitions, and reduced burdens on firms. This alignment lowers regulatory friction for cross-border firms and supports more consistent strategic planning. It may also help harmonise AI governance across the region, although the UK’s early lead and growth-focused approach continue to give its financial sector an advantage in AI adoption.
The path forward for AI in financial services
The evolving AI regulations in both the UK and EU represent a critical opportunity for financial services firms to accelerate the practical adoption of AI. By easing overly burdensome requirements and clarifying the scope of “high-risk” AI, regulators can help create a growth and innovation-friendly environment that balances consumer protection with technological progress.
This will enable firms of all sizes to harness AI’s potential to enhance customer experiences, improve risk management, and increase operational efficiency. Ultimately, a flexible and pragmatic regulatory framework will be essential to ensure the financial services sector remains enthusiastic, competitive and resilient in an increasingly AI-driven world.
