The head of the Financial Conduct Authority (FCA) has said that artificial intelligence could disrupt the financial services sector in “ways and at a scale not seen before”, warning that the regulator would be forced to take action against AI-based fraud.

Nikhil Rathi, the chief executive of the FCA, said that there are risks of “cyber fraud, cyber-attacks and identity fraud increasing in scale and sophistication and effectiveness” as AI becomes more widespread, in a speech delivered to executives in London yesterday.

The UK prime minister, Rishi Sunak, is hoping to make the UK a centre for the regulation of AI. The UK is still yet to formalise AI regulation and is taking a non-statutory approach to the burgeoning technology, while the European Union is one step away from passing a landmark act to regulate the deployment and creation of AI.

The FCA’s work on AI is part of a broader effort to work out how to regulate the big tech sector as it increasingly offers financial products. This includes services like Google Pay and Apple Pay, as well as the advancement of cryptocurrency.

In his speech, Rathi warned that AI technology will increase risks for financial firms in particular. Senior managers at those firms will be “ultimately accountable for the activities of the firm”, including decisions taken by AI, he said.

“As AI is further adopted, the investment in fraud prevention and operational and cyber resilience will have to accelerate simultaneously. We will take a roust line of this – full support for beneficial innovation alongside proportionate protections.”

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Rathi will use the example of a recent “deepfake” video of the personal finance campaigner Martin Lewis supposedly selling speculative investments.

Lewis said the video was “terrifying” and called for regulators to force big technology companies to take action to stop similar scams.

Derek Mackenzie, CEO of global skills provider Investigo said: “With AI set to have a seismic impact of the financial services industry, tackling the digital skills shortfall should be a top priority. From compliance to coding, businesses operating in this area are crying out for the latest tech talent to help them explore and implement AI into the workplace, yet many remain woefully understaffed.

“The FCA is right to get ahead of the game on this important issue, but without the right talent pipeline in place, far too many firms will find themselves falling behind in terms of AI capabilities and open to risk due to a lack of in-house regulatory expertise.”