Nikhil Rathi, chief executive of the Financial Conduct Authority (FCA), has warned that the UK financial system is “unprepared” to deal with the growing wave of geopolitical and cyber threats to the global economy.
Speaking at the City Dinner at the Mansion House in London, Rathi said the impact of modern conflict now “reaches balance sheets, finance, markets and consumers as much as any battlefield”.
“Whether it’s a cyberattack or a production shock, they alter returns and test confidence,” he said. “And we are neither tactically nor strategically prepared.”
Rathi’s warning comes amid escalating 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 British firms were “potentially massively underinsured” against systemic and catastrophe risks, leaving businesses – and ultimately taxpayers – at risk.
“Globally, a fraction of catastrophe and cyber risks are insured,” Rathi noted. “The rest goes into the profit and loss accounts of companies, into credit ratings, into risk premiums, into prices and finally into households. And when the coverage is so low, it hits the national treasury. That, together with the impact on livelihoods, fuels the anger of the population.”
The FCA’s warning was backed up by new findings from the Napier AI/AML Index 2025-26, which show money laundering in the UK rose from £135 billion to £146 billion last year.
Britain’s position as a global financial center has made it increasingly vulnerable to illicit capital flows. The report estimates that financial crime drains the UK economy of $195 billion (£160 billion) every year – equivalent to 5.35% of GDP.
Greg Watson, CEO of Napier AI, said the data highlighted a “systemic problem” that was undermining the country’s economic resilience.
“Financial crime continues to undermine the resilience of the UK’s financial systems. Our data shows that up to $3.3 trillion could be recovered globally through AI-powered detection and monitoring,” Watson said.
“However, building resilience against financial crime is not just a technological challenge. It requires collective action from regulators, financial institutions and technology providers to ensure that AI adoption is responsible and effective.”
The speech followed the Treasury’s confirmation of a major overhaul of the UK’s anti-money laundering (AML) regime, which will see the FCA take on a “super-regulatory” role for professional services.
As part of the reforms, the FCA will directly supervise lawyers, accountants and company formation agents for compliance with money laundering rules – bringing these professions into its expanded anti-money laundering remit for the first time.
The move is 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 of the FCA’s public messaging on systemic risk and operational resilience. The regulator is expected to push for greater cross-sector collaboration and investment in AI-driven regulatory technology as part of its 2026 strategy.
Analysts also expect the regulator to prioritize stress testing for cyber resilience and liquidity risk management amid concerns that global tensions and digital vulnerabilities could trigger new financial contagion channels.
