Navigating AI in Financial Services: Legal Risk or Competitive Edge?
The financial services sector is experiencing a generational shift, as artificial intelligence (AI) transforms how institutions operate, serve customers, and manage risk. In the UK, major banks, fintech startups, and asset managers are all integrating AI to drive operational efficiency and deliver personalised financial products. But the legal implications are far-reaching — and complex.
At John & Partners, we’re seeing a surge in client demand for clear legal frameworks to deploy AI responsibly while remaining competitive. Below, we explore three key areas where financial institutions must proceed carefully.
1. AI & Regulatory Scrutiny: The Coming Wave
The UK’s approach to AI regulation is evolving. While the government has opted for a sector-specific, light-touch approach compared to the EU AI Act, regulators like the FCA and ICO are already issuing guidance on the use of automated decision-making and algorithmic fairness in financial services.
“Firms must not assume that the absence of AI-specific legislation means there is no legal risk,” says Daniel Okafor, who leads the firm’s TMT practice. “Existing laws — like the Financial Services and Markets Act, the Consumer Duty, and the UK GDPR — already place significant obligations on financial institutions using AI.”
2. AI Due Diligence in M&A and Investments
For private equity firms and institutional investors acquiring AI-driven fintechs or neobanks, a standard legal due diligence approach may not be sufficient. Proprietary algorithms, training data, and ethical governance frameworks now form a critical part of the valuation.
“In deals we’ve advised on, we’re seeing buyers ask for detailed audits of AI architecture and explainability metrics,” explains Amira Shah, Corporate & M&A Partner. “The legal community must adapt to ensure acquisitions don’t become post-deal liabilities.”
3. Data Protection: The Legal Backbone of AI
As financial services companies train AI models on customer data, ensuring compliance with the UK GDPR is non-negotiable. Questions of lawfulness, transparency, and international data transfers are often misunderstood in fast-paced innovation environments.
“We routinely advise clients on how to future-proof AI deployments against data protection risks,” says Neha Kapoor, Associate in Data Protection & IP. “Issues like data minimisation and bias mitigation aren’t just ethical concerns — they’re legal exposures.”
Looking Ahead
AI will undoubtedly define the future of financial services, but institutions that move without legal discipline risk serious regulatory and reputational fallout. At John & Partners, we help clients innovate within a sound legal framework — striking the balance between disruption and compliance.
To discuss how AI affects your business model or deal strategy, contact Amira Shah or Daniel Okafor at John & Partners.
