UK Banks Are Already Cutting AI Exposure, Top Regulator Says

By Olivia Hart

UK banks have started trimming their exposure to artificial intelligence as fears of a brutal sector correction mount, according to Katharine Braddick, the Bank of England's top banking supervisor. In her first interview since taking over the Prudential Regulation Authority in July, Braddick said the BOE's extensive interrogation of banks' AI exposure has not shown lenders would act as an "amplifier" of any AI shock. The central bank, she stressed, is not being complacent.

"We're all alarmed at the moment, aren't we?" Braddick said. The BOE is not currently planning to use capital rules to push exposures lower. But she described a retrenchment already visible in the market. "I can see firms looking at their risk appetite and thinking and considering, 'Yes this client, not that client.' You do see it feed through."

What is driving the alarm?

Two events frame the regulator's anxiety. First, Anthropic PBC's Mythos model spooked watchdogs and governments worldwide, forcing them to contemplate unprecedented cyberattacks carried out by agentic AI. Braddick joined the authority a few months after that episode.

Second, the US midterm elections triggered a sell-off in AI-related stocks — a rout that has already imperiled Anthropic's much-anticipated public offering. For a regulator whose job is stability, a falling market is not an abstraction; it is a live stress test of bank balance sheets. Braddick says AI risks are a "constant conversation," alongside broader questions of operational resilience in her talks with bank chief executives.

What rules are coming?

The PRA and the Financial Conduct Authority will publish guidance later this month on risks from frontier AI and quantum computing. Braddick said the approach would be "quite concrete," including governance expectations, and she hopes it will launch an "iterative exercise" leading to deeper partnerships between the BOE and the industry. A concrete document, however, is not the same as enforced limits — nothing in the guidance, on her account, amounts to a capital penalty for AI exposure.

She is also working to operationalize the "minimum viable bank" framework proposed by BOE Governor Andrew Bailey earlier this year. The concept would require banks to hold "bare metal" functions capable of delivering continuous service during a cyber-attack. "It's an urgent question," Braddick said of deliberations over which banks should run their own infrastructure, and how to structure a solution for smaller lenders that cannot afford their own rails. No deadlines have been set. Urgency, so far, has no timetable attached.

She frames this work as central to Britain's economic interests. "Operational resilience doesn't deliver financial resilience. But the two are out of kilter, so we need to uplift operational resilience," said Braddick, who is also a BOE deputy governor. Resilience work is "one of the most important things we can do for the UK's competitiveness," she said.

Where does capital stand?

Capital requirements dominate the public competitiveness debate, and banks are leading demands for relief. Chancellor of the Exchequer John Healey recently wrote to Governor Bailey urging the BOE to implement agreed reforms "as quickly as possible" and deliver "further proposals" to keep the UK competitive.

Braddick called the letter "completely understandable," though she said it had not changed her thinking on capital. The Financial Policy Committee meets later this week to discuss a package of capital reforms, following last year's decision to cut the UK's benchmark capital requirements by 1 percentage point, to 13%. The outcome will be announced on Nov. 26.

"I don't have a defensive position on capital, but it is the keystone of everything that we do about financial resilience," she said. She declined to discuss specifics — whether the countercyclical buffer's neutral level, the extra capital banks hold in normal conditions, should fall below 2%, or whether concentration risk charges should change. She also said she does not expect Healey's "further proposals" to produce another grand reform package, arguing instead for stability and predictability after recent change.

That philosophy shapes the PRA's first five-year strategy, promised for early next year. Braddick said her officials would "soon" begin testing ideas on firms, particularly on how the authority should be held accountable for growth and competitiveness.

Is the PRA opening up?

The regulator has promised more transparency — something Braddick said was partly informed by her three years at Barclays Plc, when she realized how much of a mystery regulators can be from the outside. Banks want clarity on the capital buffer for so-called other systemic institutions, long a black box. "There are bits of our regime that are opaque to firms, where it's useful for us to ask whether that opacity is necessary or even intended," she said, adding she was "open to that conversation."

She also addressed UBS Group AG, which has signaled it could move its headquarters if Switzerland pushes ahead with a new capital regime. Braddick said she has not spoken to "a large Swiss bank about where it might want to headquarter," but two different firms have asked about relocating to the UK in recent weeks. "What UBS want to do is up to UBS," she said. "We don't chase business, but where firms are interested in what it means to locate in the UK, whether it works for them, we would always want to talk to them."

The message from Threadneedle Street is steady: banks are already de-risking AI on their own, and the PRA intends to guide, not force, the retreat.