British banks are becoming increasingly reliant on a handful of foreign tech giants to power their AI ambitions, new research from Bank of England and Financial Conduct Authority has revealed, raising concerns over the City’s dependence on overseas infrastructure.

The three largest cloud computing providers account for 79 per cent of reported supplier relationships among financial services firms, according to a joint survey by the Bank and Financial Conduct Authority (FCA).

More than a third of cloud relationships were deemed critical to operations and difficult to replace, yet just 35 per cent of those had tested plans to switch providers in the event of disruption.

The findings come amid growing scrutiny of Britain’s reliance on US technology companies, with a recent Google Cloud outage highlighting the potential consequences of disruption to infrastructure used by banks and other businesses.

The Treasury Committee has pressed regulators over their oversight of major cloud providers, warning that an outage could have serious consequences for financial stability.

Meanwhile, the report found that third-party providers account for 53 per cent of systems considered highly material to their operations. However, just 24 per cent of respondents reported having deep knowledge of their most important third-party AI systems, with 81 per cent instead relying on assurances from suppliers and contractual protections.

“Nearly all firms have an AI policy in place, however very few have a clear understanding of the third-party AI systems they are using”, said Sebastien Marchon, chief executive of fintech firm Rydoo. “That needs to change if firms want to fully leverage the benefits and ensure they can answer to regulators”.

Marchon said newer integration technologies, including Model Context Protocols, could help businesses connect AI tools to their existing software, but warned that oversight of external providers needed to improve.

A separate KPMG survey found that 87 per cent of UK financial services leaders believe AI will have a greater impact on the industry than the 1986 Big Bang reforms, which transformed London’s financial markets.

But the bank’s research suggests that firms face significant obstacles in putting the technology to work. Almost a quarter cited difficulties integrating AI into existing business processes as a major barrier, while 22 per cent pointed to outdated systems and infrastructure.

The FCA last week warned that some financial firms were deploying AI without adequate governance or human oversight, urging businesses to make sure senior managers remained accountable for the technology.