Welcome to The Fiscal Dispatch, Atticus Partners’ financial services newsletter. Once a month, we cover topical stories relating to financial services (FS) in Westminster and Whitehall.
In this edition, we look at the deployment of Mythos in the UK, the launch of targeted support, the impact of the war in Iran on markets, and more.
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UK Banks Brace for their ‘Mythos’ Moment
The UK financial sector is entering a pivotal phase in its relationship with artificial intelligence as a new model from US developer Anthropic called Mythos is deployed within British banks, prompting both excitement and alarm among regulators, central bankers and industry leaders.
The reason for this excitement and concern is that Mythos is not a typical AI system. It has been designed with advanced cybersecurity capabilities, meaning that it can allegedly identify and exploit software vulnerabilities at a level previously unseen. The core issue however is that Mythos can strengthen cyber defences by uncovering hidden weaknesses but also has the capability to “supercharge” cyberattacks, particularly against legacy banking systems that remain widespread in the UK and Europe.
For this reason, at recent IMF and World Bank meetings, finance leaders and central banks including the Bank of England flagged the model as a potential systemic risk. Regulators in the UK are already holding urgent discussions with banks and cybersecurity agencies to assess the implications. Indeed, senior banking figures such as the Chief Executive of Barclays, CS Venkatakrishnan, have called Mythos a serious threat that warrants worry.
Looking at the consequences for the UK’s financial sector as a whole, the rollout is both strategic and risky. On one hand, early access offers the UK a competitive advantage, allowing British banks to harden their systems ahead of wider adoption, potentially reducing exposure to future AI-driven threats. Given London’s role as a global financial hub, being “first to adapt” could reinforce resilience and leadership in financial cybersecurity.
On the other hand, the risk of concentration is real. If multiple UK institutions rely on this similar AI tool, and that tool is compromised or misused, the result could be correlated failures across the system. This is precisely the kind of systemic vulnerability regulators are tasked with preventing.
There is also a governance gap. Current regulatory frameworks were not designed for AI systems capable of independently discovering and exploiting zero-day vulnerabilities. Policymakers are now racing to define oversight mechanisms in parallel with deployment, a reversal of the usual regulatory order.
UK Unveils Unified Regulatory Framework for Stablecoins, Tokenised Deposits and Payments Reform
HM Treasury has announced a major regulatory overhaul to unify payments oversight across traditional payment services, stablecoins, and tokenised deposits within a single framework, as part of reforms unveiled during Fintech Week in London.
The package introduces plans for a dedicated stablecoin issuance regime for payments, alongside regulatory recognition of tokenised deposits, signalling a clearer integration of digital assets into the UK’s financial system. The Financial Conduct Authority (FCA) is expected to see an expanded remit, including oversight of Open Banking and potential adjustments to accommodate AI-driven payment activity.
To support innovation, the government has pledged £1 million to the Centre for Finance, Innovation and Technology, alongside legislation intended to reduce administrative barriers for firms offering stablecoin payment services. Chris Woolard CBE has also been appointed as Wholesale Digital Markets Champion to help develop tokenised wholesale financial infrastructure.
City Minister Lucy Rigby KC MP described the reforms as part of efforts to ensure the UK remains globally competitive in financial services, highlighting fintech as a key national strength. The government also emphasised the role of blockchain and digital assets in reshaping financial markets and consumer services.
While industry responses have been broadly positive, commentators stress that regulatory clarity alone will not drive adoption. Operational resilience, custody solutions, and infrastructure reliability remain central to market confidence.
The Treasury has additionally confirmed forthcoming consultations on wider payment and e-money reforms, aligned with its long-term strategy to position the UK as a leading global financial hub.
The FCA introduces Targeted Support, a new regulatory framework for financial advice
This month marks a significant moment for the financial services sector as the FCA launches Targeted Support, a new regulatory framework allowing financial firms to offer more proactive help to customers without the high cost or legal constraints of formal financial advice. Seven firms have already applied to offer Targeted Support, which groups consumers into segments based on financial background and personal characteristics. These segments are then offered specific, actionable suggestions. This move is aimed at mobilising money held by individuals with enough capital to consider investing, but not enough to hire a professional financial advisor.
Previously, those looking to invest either had to pay for expensive, bespoke advice or try to navigate the complex world of ISAs and SIPPs alone. However, with an ever-increasing amount of information available online, including AI-provided personalised financial advice, there has been pressure for consumer financial services providers to respond.
While Targeted Support could democratise wealth building if successful, providing advice based on segments comes with potential issues. As firms are not required to know every detail of a customer's life, only that they fit a profile, potential suggestions could be inappropriate given an individual's financial situation. For example, a firm might suggest an investment to a customer who appears to have strong cash flow but is actually struggling with high-interest debt that the firm's data doesn't capture. It could also be argued that without the clear fiduciary guidelines of full advice, firms could be tempted to steer consumers toward high-margin in-house products.
For the regime to succeed, firms must prioritise transparency over targets, especially given that they are now competing with highly personalised and accessible AI advice. If used with integrity, this could be a significant step toward increasing retail investment participation.
Iran conflict clouds UK economic outlook
The escalation of the conflict in Iran presents a downside risk to the UK economy, driven primarily by higher energy prices and increased global uncertainty. Media reports across April suggests a broad consensus among economists, policymakers and financial institutions that the conflict is likely to weigh on both inflation and growth, bringing these twin pressures to the centre of the UK’s economic future.
Disruption around the Strait of Hormuz has pushed up global oil and gas prices, feeding directly into inflation. This is particularly significant for the UK given its position as a net energy importer. Higher energy costs are also raising input prices for businesses and eroding real household incomes, which in turn is expected to dampen consumer spending and business investment.
There are already clear signs of caution emerging across the financial system and corporate sector. Senior executives from major UK lenders, including HSBC, Barclays and Lloyds Banking Group, have highlighted rising uncertainty, softer loan demand and the potential for tighter credit conditions. At the same time, large consumer-facing businesses such as Associated British Foods have pointed to the knock-on effects of the conflict on input costs and consumer behaviour.
These issues point to a more fragile economic environment in which external shocks are amplifying existing domestic pressures, increasing the likelihood of persistently weak growth alongside elevated inflation. Looking ahead, much will depend on the duration and intensity of the conflict, particularly its impact on energy markets and whether it triggers a more sustained shift in business and consumer confidence.
Government and Regulators Streamline Banking Accountability Rules
The UK financial landscape is undergoing a significant shift as regulators move to modernise the Senior Managers and Certification Regime (SMCR), a framework established after the 2008 financial crisis to ensure executive accountability. In a coordinated effort to boost the nation’s competitiveness, the FCA and the Prudential Regulation Authority (PRA) have announced a series of reforms designed to reduce administrative friction while maintaining high standards of personal responsibility.
The primary objective of these updates is to transition from a system characterised by rigid legal processes toward a more efficient regulatory environment. Under the new measures, the number of individuals subject to these strict oversight rules will decrease by approximately 15 percent. Key changes include granting firms more time to secure approval for top-tier appointments and simplifying the fit and proper vetting process. Furthermore, the threshold for the most stringent enhanced rules will be raised, effectively exempting many mid-sized firms from the heaviest compliance burdens.
Chancellor Rachel Reeves has characterised this move not as a retreat from oversight, but as a shift toward better regulation. She has noted that since the 2008 crisis, the culture of individual accountability has become deeply embedded within the corporate governance of British financial institutions. By removing redundant requirements that often cause delays in hiring and increased operational costs, the government aims to make the UK a more attractive destination for global talent.
Industry experts have largely welcomed the news, noting that the changes address long-standing complaints regarding the duplication of paperwork and the slow pace of regulatory approvals. While the first phase focuses on senior leadership, future reforms are expected to further reduce the compliance load for mid-level staff. Ultimately, the regulators aim to create a more proportionate system that protects consumers and market integrity without stifling the growth and agility of the City of London.