As AI becomes part of everyday life building societies find themselves at a crossroad. These institutions, long dedicated to local communities and responsible lending, are now weighing the benefits and risks of adopting AI to better serve customers and improve efficiency. The emerging regulatory landscape adds to the complexity, with the UK and EU taking slightly different approaches to AI oversight. In this article, we explore how these trends could impact building societies.

The regulatory backdrop: EU vs UK approaches

 

In May 2024, the European Union enacted the EU AI Act (EU 2024/1689), setting the world’s first comprehensive, legally binding framework for artificial intelligence. The Act classifies AI systems by risk: “unacceptable”, “high”, “limited, or minimal”. It imposes strict obligations on those classified as “high-risk.” These include requirements for transparency, human oversight, data quality, documentation, and regular compliance checks. Notably, high-risk systems in financial services are directly affected. These include systems used for credit scoring and risk assessment and pricing for life and health insurance. The Act will apply fully from August 2026 and is legally binding across all EU member states.

In contrast to the EU’s legally binding framework, the UK government has pursued a more principles-based, pro-innovation approach. Rather than introducing sweeping, prescriptive legislation, the proposed Artificial Intelligence (Regulation) Bill and government white papers / policy papers have outlined five core principles: safety, transparency, fairness, accountability, and contestability; that businesses should adopt while deploying AI. The current UK model is sector-led and flexible, relying on existing regulators to interpret and adapt the principles for their respective domains. There is ongoing discussions about moving toward a centralized AI authority in future, but as of mid-2025, no such body exists in the UK, and the bill is not yet law.

Although most building societies focus on the UK market, the differences between the EU and UK approaches to AI regulation still matter. Only societies with ties to EU business or cross-border operations will need to grapple fully with the EU’s new rules. Nevertheless, the direction of travel is clear: as these organizations start exploring AI, it’s worth paying attention to the broader regulatory trends taking shape on both sides of the Channel.

Why does this matter for building societies?

 

Building societies occupy a unique niche within the UK’s financial ecosystem. Their mutual structure and focus on members’ interests mean they typically prioritize responsible lending, customer service, and long-term stability over short-term profits. For these organizations, just like Open Banking / Finance is doing at present, AI holds the promise of much improved operational efficiency, better risk management, and more tailored offerings. Yet the risks, which include bias in credit decisions, data privacy breaches, lack of explainability, and reduced human oversight, are pronounced in the context of mutual values and regulatory expectations.

Potential Impacts

 

1. Credit scoring and lending decisions

The EU AI Act singles out credit scoring as a high-risk application, demanding rigorous documentation, transparency, and bias mitigation. While most UK building societies serve local customers, some do maintain legacy books or offer services to EU-based members. This means that their AI-driven credit scoring models may fall under the EU’s high-risk classification for these specific activities. Even where this is not the case, the EU’s rules are setting a de facto standard for what “good” looks like in responsible AI deployment. UK regulators and customers alike are likely to expect similar safeguards: explainability, robust data governance, and clear accountability in lending algorithms.
 

2. Customer service and member interaction

Both the EU and UK frameworks stress transparency in AI interactions. As building societies increasingly deploy chatbots and virtual assistants they must ensure these systems clearly identify themselves as AI-powered, provide routes for human escalation, and respect privacy. For societies with even small numbers of EU-based customers, the compliance threshold is higher, but the principles are universal.
 

3. Data governance, bias, and fairness

Mutuality has always placed fairness at the heart of building society operations. The renewed regulatory focus on bias prevention and explainability in AI aligns with these values. Societies will need to document their data sources, monitor disparate impacts, and ensure that automated decisions do not disadvantage vulnerable groups. The UK’s principles-based approach gives some flexibility, but pressure to demonstrate ethical stewardship will only grow, especially as the EU’s more prescriptive stance influences best practices.

4. Operational readiness and governance

Complying with evolving AI regulations requires more than technical fixes. It demands strong governance, ongoing risk assessment, and a culture of continuous learning. The EU AI Act’s requirements for thorough documentation, regular audits, and human oversight are echoed in the UK’s calls for accountability and transparency. Building societies will need to invest in staff training, maintain clear recordsof model development and deployment, and establish feedback mechanisms for members.

5. Strategic considerations for building societies

For most building societies, AI presents a chance to deepen member engagement, streamline processes, and deliver new services. Yet the regulatory journey is only beginning. Key steps include:

• Audit current AI applications: Identify where AI is already in use, assess risk levels, and benchmark practices against emerging standards.
• Strengthen governance frameworks: Develop clear policies for AI development and deployment, assign oversight responsibilities, and ensure board-level awareness.
• Invest in training and culture: Equip staff at all levels with the knowledge to understand, monitor, and challenge AI systems.
• Engage proactively with regulators: Stay ahead of legal requirements by participating in regulatory sandboxes and industry forums.

 

Looking ahead: Regulation as catalyst

 

For building societies, the mutual ethos has always demanded prudent management and responsive governance. The coming era of AI regulation, whether through the EU’s rules or the UK’s principles, invites societies to build on this legacy. By embedding transparency, fairness, and robust governance into their AI strategies, building societies can not only meet new compliance demands but also strengthen the trust that underpins their business.

The regulatory winds may be shifting, but the destination remains the same: sustainable, member-centric growth in a digital world.

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