Its Feedback Statement to the Mortgage Rule Review, FS25/6, acknowledged concerns raised by the industry regarding the technology.
Some respondents asked for additional rules and guidance regarding the use of AI, and others had concerns about holding the technology accountable for the advice given.
Some respondents wanted the FCA to introduce defined standards on transparency, suitability and liability for AI-generated advice, with worries raised about its potential to make errors, hallucinate or provide incomplete information.
The FCA said its existing frameworks, namely Consumer Duty and the Senior Manager and Certification Regime, were already able to handle any risks with AI.
Some respondents said consumers might not fully understand the recommendations made by AI or would engage with the advice superficially, which could result in poor decision-making.
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Respondents also said there needed to be clear disclosure of how AI is used in the advice process, while others warned its use could exclude some older borrowers.
Feedback given to the FCA suggested that the role of advisers would evolve, not disappear, and they could act as interpreters, validators or facilitators of AI to help consumers understand and contextualise AI-given advice to narrow their options down from an AI-generated list.
AI can also improve the sales process, eligibility assessments, detect fraud and manage administrative tasks, but human judgement was still needed in complex cases, the regulator added.
The FCA said there was a “strong consensus” that AI should be used to improve the mortgage advice process but not replace advisers. It said it would consider feedback to allow firms to adapt and innovate, noting that its guidance would be principle-based and outcome-focused.
The FCA supports innovation
The FCA reminded the sector that it was running an open finance TechSprint focused on mortgages, and it encouraged more mortgage industry applicants to participate in its Innovation Services.
It said it would also continue to consider the role and standard required for mortgage disclosure to support digital customer journeys and align with Consumer Duty.
The regulator sought feedback on disclosures and financial promotions, and found that while no respondents suggested “material changes”, consumers engaged with them in a limited way.
It said: “Larger mainstream lenders highlighted the sunk investment costs from developing ESIS-compliant systems, which should be considered in any cost‑benefit analysis of potential changes.
“Specialist and niche lenders, such as bridging firms, were in favour of change and increased flexibility, currently limited by our disclosure framework. Many respondents highlighted potential benefits of permissive changes, provided we allowed long implementation periods.”
The FCA said it was worth further exploring changes to disclosure and financial promotion rules to “support innovation and smoother digital journeys”.
It said Consumer Duty, as well as changes in the market, technology, consumer behaviour and expectations, meant it should revisit how sector requirements change to enable firms to support consumer understanding.
“We will take a step‑by‑step approach, first using existing behavioural research, firm insights and potentially commission mortgage‑specific research in 2026,” the FCA said.
The regulator’s role in digitising home buying and selling
With its Mortgage Rule Review discussion paper published before the government announced plans to digitise the house transaction process, the FCA asked if regulation could support this.
Many respondents said government intervention was needed, noting that benefits to digitalising the process would improve certainty, speed, and efficiency, and reduce fraud and costs.
The FCA said this could be particularly true for home moves and equity release.
Some respondents suggested that the FCA share its experience in creating frameworks to enable data sharing and establish conduct standards.
The FCA said it had a role to play in supporting the government and industry to digitalise the house buying process, particularly to streamline anti-money laundering (AML) checks.
