In his landmark report on AI, Mills warns that while the technology has the power to help close the advice gap, the protection gap and improve financial capability, it also puts consumers at huge risk of fraud.

In the report, Mills highlights areas in which AI could bring substantial benefits, including addressing the fact that only 9% of consumers receive financial advice and only 30% hold life or income protection policies.

Other problems AI could help solve include low levels of product-switching; access to banking for the 900,000 people who do not currently have an account; and tackling savings inertia with £300bn currently sitting in low-interest accounts.

But Mills warns that alongside the benefits there are mounting risks.

The report says: “The same capabilities that promise to help consumers will also serve those who seek to target and defraud them.

“By 2030, AI is likely to amplify fraud and cyber risks, making attacks faster, cheaper, more scalable and more persuasive — and at the same time harder to spot and stop.

“Deepfakes, synthetic identities and personalised social engineering are taking fraud and cyber risks into a new era and changing how fraud and cyber attacks are conducted.”

And fraud is not the only danger.

“Consumer and data protection risks will also grow. AI could widen access and improve personalisation, but it could also amplify bias, enable opaque or individualised pricing, exploit vulnerabilities and deepen exclusion where access to high-quality tools is unequal,” the Mills Review says.

Among Mills’ recommendations to counter AI risks, he suggests regulators take “a more proactive, hands-on approach to financial capability and access to future vital AI-enabled services”.

He says: “The FCA should consider convening the development of a free, inclusively designed and trusted AI-enabled financial capability and support system.

“This would provide consumers with access to reliable financial information, guidance and support from trusted sources through a range of digital tools.”

The report suggests the FCA should consider working with government, The Money and Pension Service (MaPS), consumer bodies and industry to “explore the feasibility of a public-interest, or sovereign-style, AI-enabled financial capability service that is free at the point of use and designed to support better consumer outcomes”.

Without such access, Mills warns that there is a risk that AI could amplify inequality instead of reducing it, as consumers with the greatest need for support would be excluded from the leading-edge technology that only paid-for services offer.

The Mills Review also underlines the threat from consumers turning to mainstream AI services that are not subject to financial regulation such as ChatGPT, Claude and Gemini for advice, leaving them with no recourse.

Financial adviser AI platform Saturn’s chief executive Amal Jolly says: “AI brings new opportunities to close the advice gap, improving the financial lives of millions of adults, but as this report shows it also brings huge risks.

“In financial services, AI is the new Wild West: consumers are left with no protection.

“Only 9% of people have access to regulated human financial advisers, but 100% of people have access to ChatGPT and other AI platforms.

“This is not just a theoretical problem, but can cause real harm to people who are entrusting major life-changing financial decisions to unregulated AI.”