Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), has warned that the UK financial system is “not prepared” to face the rising wave of geopolitical and cyber threats facing the global economy.
Speaking at a City dinner at London's Mansion House, Rathi said the impact of modern conflict now “reaches across balance sheets, funding, markets and consumers as much as any battlefield.”
“Whether it is a cyber attack or a production shock – they drive up yields and test confidence,” he said. “And we are not prepared tactically or strategically.”
Rathi's warning comes amid rising geopolitical tensions and repeated cyber incidents targeting financial infrastructure, including attacks on ATMs, payment systems and shipping routes such as the Red Sea Corridor.
He said UK companies were “potentially massively underinsured” against systemic and disaster risks, leaving businesses – and ultimately taxpayers – exposed.
“Globally, a fraction of disaster and cyber risks are insured,” Rathi said. “The rest gets transferred to company P&Ls, credit ratings, risk premiums, prices and ultimately to families. And when the cover is so low, it hits the exchequer. Along with the impact on livelihoods, it creates popular anger.”
The FCA's warning is reinforced by new findings from the Napier AI/AML Index 2025-26, which show that money laundering in the UK has increased to £146 billion compared to the previous year – up from £135 billion.
The UK's status as a global financial center has made it vulnerable to illicit capital flows, with the report estimating that financial crime drains $195 billion (£160 billion) from the UK economy every year – equivalent to 5.35% of GDP.
Napier AI CEO Greg Watson said the data highlighted a “systemic issue” undermining the country's economic resilience.
“Financial crime continues to weaken the resilience of UK financial systems. Our data shows that up to $3.3 trillion could be recovered globally through AI-enabled detection and monitoring,” Watson said.
“But building resilience against financial crime is not a technology challenge alone. Collective action is needed between regulators, financial institutions and technology providers to ensure AI adoption is responsible and effective.”
The speech followed the Treasury's confirmation of sweeping changes to the UK's anti-money laundering (AML) regime, under which the FCA will take on the role of “super-regulator” over professional services.
Under the reforms, the FCA will directly monitor lawyers, accountants and company formation agents for compliance with money laundering rules – bringing these professions within its expanded AML scope for the first time.
The move comes as part of efforts to tighten systemic oversight and reduce fragmentation in the UK compliance landscape.
Financial crime experts say Rathi's comments represent a significant escalation in the FCA's public messaging about systemic risk and operational resilience. The watchdog is expected to push for greater cross-sector collaboration and investment in AI-powered regulatory technology as part of its 2026 strategy.
Analysts also expect regulators to prioritize stress-testing for cyber resilience and liquidity risk management amid fears that global tensions and digital vulnerabilities could trigger new financial infection channels.
jamie young
Jamie is a senior reporter at Business Matters, with over a decade of experience in UK SME business reporting. Jamie has a degree in Business Administration and regularly attends industry conferences and workshops. When Jamie is not reporting on the latest business developments, he is passionate about mentoring budding journalists and entrepreneurs to inspire the next generation of business leaders.
