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The Financial Sector Conduct Authority ("FSCA") and the Prudential Authority ("PA") released a first of its kind report on the use of artificial intelligence ("AI") in the South African financial sector on 24 November 2025 (a copy of the report can be found here). The study provides a data-driven view of current adoption, investment intentions, use cases, benefits, risks and governance practices, based on an industry survey that was conducted in late 2024. The survey gained approximately 2,100 responses across banking, insurance, investments and payment providers.
According to the report, AI is already reshaping the core functions across the financial sector. Banks lead adoption at 52%, followed by payment providers at 50%, with pensions at 14% and both insurance and lending at 8%. The report differentiates between the application of Traditional AI and Generative AI ("GenAI"). The report provides that Traditional AI is most commonly applied in operations and IT, risk and compliance, and research and analytics, while GenAI is gaining momentum for productivity, knowledge management and customer engagement.
Risks and governance expectations
The report also focuses on material risks that require active management by financial institutions. Consumer protection concerns include bias, opaque decision-making, limited disclosure and potential for unfair outcomes in amongst others, credit applications and insurance coverage.
Regulatory alignment is a recurring theme. Internationally, jurisdictions are converging on risk-based, principle-led approaches that combine technology-agnostic financial rules with targeted AI requirements. Locally, the FSCA and PA have pointed out to a coordination with the Information Regulator under the Protection of Personal Information Act, 2013 ("POPIA"), alignment with existing market conduct and prudential regimes, and the development of effective disclosure practices especially in cases where AI influences outcomes in credit, insurance pricing, or other consumer-impacting decisions.
Next steps
The FCSA and PA have identified the below learnings from the data analysis:
- Explainability and transparency: Institutions are encouraged to adopt recognised explainability methods such as SHapley Additive exPlanations ("SHAP") and Local Interpretable Model-Agnostic Explanations ("LIME") to ensure AI-driven decisions are more understandable and auditable.
- Governance frameworks: Financial institutions are encouraged to consider comprehensive governance structures, including strong data governance, model risk management and board-level oversight, to ensure that AI is deployed ethically and effectively.
- Regulatory coordination: The FSCA and PA would like to collaborate closely with the Information Regulator to ensure alignment with POPIA particularly in relation to data privacy and consumer protection.
- Prioritisation of use cases: To ensure that the benefits of AI are maximised, the PA and FCSA have pointed out that it is key for certain use cases to be prioritised so that their associated risks can be effectively managed.
- Ethical standards and oversight: The development of sector-wide guidance for ethical, fair and responsible AI is envisaged, alongside enhanced oversight to mitigate bias, inaccuracies and consumer harm.
- Efficient and effective disclosure: Institutions should clearly disclose when AI is used in consumer-impacting decisions, such as credit assessments or insurance pricing.
- Digital and AI literacy: Promoting consumer education and awareness will be critical to ensure that individuals understand how AI affects their financial decisions and rights.
Further to the above, the FCSA and PA intend on publishing a discussion paper to engage stakeholders on supervisory and regulatory questions and to align financial sector efforts with broader national AI strategies.
Why the report matters
It is important to note that although the report is not a legally binding, it clearly signals the supervisory approach that will be taken by the FCSA and PA, and will inform governance, risk management and investment decision on AI across the financial sector.
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