Poor quality data, an overreliance on legacy tech, and ongoing regulatory uncertainty are slowing AI adoption across UK banks, pushing them towards low-risk, low-value use cases, according to new research from SaaScada.

The core banking platform’s latest report, AI in Banking: Big Ambitions, Broken Foundations, shows that despite the tech’s promise, its adoption in the UK banking sector remains lacklustre, with barely half of banks deploying AI.

After polling 150 UK banking innovation leaders, the study found that although 80% believe the sector is primed and ready to take full advantage of AI, and 81% believe it will have a major impact on the industry, just 55% of UK banks have actually deployed it in their operations. 

This slow embrace of AI stands in stark contrast to the wider financial sector, where 75% of firms have already integrated the technology, according to data from the Bank of England last year.

It’s also out of step with consumer behaviour, with recent research from Lloyds finding that a staggering 28 million adults now use AI for personal finance, and over half relying on it in the past year for financial advice.

With appetite, ambition, and demand all in place, the question is, what’s stalling progress? 

According to SaaScada, UK banks are hitting a data wall, with the study finding that a lack of real-time, high-quality data is a key obstacle across the industry. 

Almost two-thirds (63%) of banking leaders said that AI in finance is “going nowhere fast” without instant access to accurate transactional insights, while 79% said that a quality data foundation is vital to keep up with AI-driven innovation.

Added to that, a dependency on legacy technology is weighing most banks down, with 66% trying and too often failing to run AI on their legacy core systems, likened to fuelling an EV with petrol.

As a result, 79% of UK banks complained that more agile and tech-savvy fintech challengers are racing ahead, and leaving traditional institutions scrambling to catch up.

But even if they can get the foundations of AI right, most banks are still waiting for clarity on the scope and demands of future regulations.

The majority (63%) of banking IT leaders admit the prospect of more compliance and reporting requirements puts them off using AI altogether, while 68% say regulatory uncertainty is creating hesitation, and forcing their AI plans on the back burner.

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Rather than looking for less regulation, however, most banks are keen to see the government step up to the challenge. 

More than half (54%) agreed that the FCA’s cautious approach to AI will be effective in tackling risks like bias, inaccuracy and data privacy, and even more (67%) said that, while stricter regulation will inevitably slow adoption, it’s a price worth paying to ensure oversight and prevent misuse. 

“The FCA isn’t going to reinvent the rulebook for AI and nor should it. It’ll fold AI into existing principles and judge firms on outcomes. That’s the right approach,” said Nelson Wootton, co-founder and CEO at SaaScada.

“The guardrails already exist, and waiting for new rules is just an excuse not to act. Banks burying their heads in the sand are missing the point – AI won’t just need compliance, it’ll assist with compliance. But only if they get their act together on data.”

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