FCA Announces Second Cohort for AI Live Testing: Barclays, Lloyds, UBS and Five Others Join the Programme
Credit: UKAuthority
Eight firms - spanning incumbents, challengers, and specialist fintechs begin testing AI use cases under regulatory oversight, from agentic payments to AML detection.
Context:
On 21 April 2026, the FCA announced the second cohort of firms selected to join its AI Live Testing programme, revealed at UK FinTech Week. The eight firms are: Aereve, Coadjute, Barclays, Experian, GoCardless, Lloyds Banking Group (Scottish Widows), UBS, and Palindrome. Testing began in April and will run until the end of 2026, with an evaluation report expected in Q1 2027.
The programme, conducted in partnership with AI assurance specialist Advai, allows firms to test AI models in live environments under FCA regulatory oversight. It focuses on governance, risk management, and real-time monitoring of AI systems, allowing the FCA to directly observe how AI behaves in production conditions, rather than relying solely on firm self-reporting.
The first cohort (October 2025) included Gain Credit, Homeprotect, NatWest, Monzo, Santander, Scottish Widows (also in cohort 1), and Snorkl. A 49% year-on-year increase in applications to the FCA's Regulatory Sandbox and Innovation Pathways reflects the growing demand for AI regulatory support across the sector.
Rules and Guidelines:
The FCA has been explicit that it does not intend to introduce AI-specific rules, instead relying on existing frameworks: Consumer Duty, SM&CR, SYSC operational resilience rules, and Principles for Business, to govern AI deployment. The Live Testing programme is the mechanism through which the FCA is building its practical understanding of how AI operates within those existing frameworks.
Use cases being tested in cohort 2 span customer-facing and B2B applications: AI-enabled targeted investment support (relevant to advice guidance boundary work), consumer credit score insights (directly relevant to FCA credit information reform), agentic payment flows, anti-money laundering detection, and Know Your Customer automation. This breadth is deliberate; the FCA is seeking insight across the full range of AI application categories in financial services.
The FCA has confirmed it will publish a Good and Poor Practice report for AI in financial services later in 2026. This report will serve as de facto supervisory guidance for all firms deploying AI, including those not in the testing programme. It will not have binding rule status but will set the FCA's expectations in practical terms, similar to the function of Dear CEO letters.
Businesses Affected:
All FCA-regulated firms deploying or planning to deploy AI in customer-facing services, credit decisions, fraud detection, pricing, or operational processes will be directly affected by the Good and Poor Practice report.
Firms using third-party AI tools or models provided by Big Tech face the same regulatory expectations as firms building AI in-house, for whom operational resilience and third-party risk obligations apply.
Financial technology firms and startups offering AI solutions to regulated firms whose products must operate within the Consumer Duty and SM&CR frameworks, regardless of the deploying firm's AI sophistication.
Next Steps:
Read the FCA's feedback statement from September 2025 on AI Live Testing to understand the parameters of the programme and the FCA's priorities for AI oversight.
Prepare for the Good and Poor Practice report in H2 2026. Begin documenting AI governance now — model validation, explainability approach, outcome monitoring processes, and SM&CR accountability mapping — so gaps can be identified before publication.
Apply for the next cohort when applications open. The 49% increase in Innovation Pathways applications suggests demand significantly exceeds capacity — early preparation improves selection prospects.
Engage with the Mills Review output (summer 2026). The review's FCA Board recommendations will directly inform whether any AI-specific regulatory requirements are introduced for retail financial services.
Source | FCA | AI Live Testing
