February 2026 marked a notable shift in how the Financial Conduct Authority (FCA) communicates with regulated firms.
According to Theta Lake, rather than issuing more than 40 individual portfolio letters, the regulator launched a series of annual, sector-specific Regulatory Priorities reports — beginning with insurance on 24 February and extending to wholesale markets, retail banking and consumer investments throughout March.
Theta Lake recently detailed the FCA’s 2026 priorities and how emerging regulatory expectations for AI and off-channel communications impact compliance.
The reports are explicitly designed to guide boards and senior management, and the FCA has made clear that firms should read them carefully and act where required.
Two themes stand out across the published reports: the responsible adoption of artificial intelligence, and the ongoing challenge of off-channel communications.
Artificial intelligence
The FCA’s approach to AI in 2026 strikes a broadly collaborative tone. The Insurance Regulatory Priorities Report — the first in the new series — explicitly names growth and innovation as formal regulatory priorities, marking a departure from communications that previously focused almost exclusively on consumer harm remediation. Within that framing, the regulator encourages firms to experiment with AI and to make use of its sandbox services and Innovation Pathways, including the Supercharged Sandbox for smaller market participants.
The FCA will assess AI deployment across the insurance value chain — including underwriting, claims and consumer services — during this quarter, and intends to publish an evaluation report from its AI Live Testing initiative by the end of the year.
According to Theta Lake, the Wholesale Markets Regulatory Priorities Report reaffirms this direction, calling on wholesale firms to engage with regulatory sandboxes and industry initiatives, and to implement robust governance frameworks for emerging technologies while managing third-party and data risks. The regulator specifically commits to supporting responsible AI adoption through its FCA Innovation Hub. The Consumer Investments Regulatory Priorities Report similarly pledges FCA support for AI innovation, including assistance with sandbox testing and publication of an AI Live evaluation report.
Crucially, the FCA pairs its encouragement of AI with a firm requirement that firms closely monitor customer outcomes. The message is consistent across every report: innovation is welcome, but it does not diminish firms’ accountability for the results it produces.
Off-channel communications
For wholesale firms in particular, the FCA’s position on off-channel communications has grown sharper in 2026. The Wholesale Markets Report explicitly identifies banks’ use of off-channel communications as an area the regulator reviewed, finding both progress and persistent shortcomings.
This follows a multi-firm review of 11 wholesale banks conducted in 2025, which found that while all firms had strengthened their frameworks over the preceding two years, policy breaches continue to occur across all staff grades. Most notably, 41% of those breaches involved individuals at director level or above — the very people responsible for setting the tone from the top.
A further development worth noting: from 1 September 2026, revisions to the FCA’s non-financial misconduct rules will extend the Code of Conduct to cover behaviours such as harassment, bullying and discrimination, even when communicated through informal channels. Persistent use of off-channel communications will therefore carry additional regulatory exposure beyond recordkeeping obligations alone.
Takeaways for compliance and governance teams
From a compliance standpoint, firms should prioritise documenting AI use cases across underwriting, claims, consumer services and investment decision-making, while ensuring appropriate governance structures are in place. Audit standards such as ISO 42001 for AI Management Systems or the CSA STAR for AI can help demonstrate that internally or externally developed tools are subject to tested and trusted practices across development, training, deployment and maintenance.
In the view of Theta Lake, Firms should also review off-channel communications policies to cover the full range of modern channels, including cloud calling systems and messaging applications, and consider how governance of AI assistant prompts, responses and notetakers is reflected in their risk profiles. Applying appropriate compliance technology to support oversight in these areas will be increasingly important.
Taking steps to strengthen AI and off-channel compliance protocols now should place firms in a stronger position as FCA reviews and enforcement activity take shape through the remainder of 2026, Theta Lake believes.
Read the full Theta Lake post here.
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