The UK has launched a review of the artificial intelligence (AI) market, including chatbots such as ChatGPT.
The Competition and Markets Authority (CMA) said it would study the opportunities and risks of AI, as well any competition rules and consumer protection that might be needed.
Its work follows calls for the UK to lead the world in developing global standards for the new field after MPs raised concerns about the recent "explosion" of AI that can create text, images and video that is barely distinguishable from output from humans.
Regulators worldwide are stepping up their scrutiny of AI, given its explosion into general use worldwide and fears over its impact on jobs, industry, copyright, the education sector and privacy, among many other areas.
AI has been on the rise in recent years, with ChatGPT, a form of generative AI, rising to prominence in recent months after a version was released to the public last year.
Technology experts, including Elon Musk, have urged scientists to pause developing AI to ensure it does not pose a risk to humanity.
CMA chief executive Sarah Cardell said: "AI has burst into the public consciousness over the past few months but has been on our radar for some time.
"It's a technology developing at speed and has the potential to transform the way businesses compete, as well as drive substantial economic growth.
"It's crucial that the potential benefits of this transformative technology are readily accessible to UK businesses and consumers, while people remain protected from issues like false or misleading information.
"Our goal is to help this new, rapidly scaling technology develop in ways that ensure open, competitive markets and effective consumer protection."
The US Federal Trade Commission this week also alerted the industry this week, saying it was "focusing intensely" on how the technology is being used by firms and the impact it may have on consumers.
The CMA said with many of the important issues under the spotlight due to the development of AI being considered by government and other regulators, its study will focus on the implications of competition for firms and consumer protection.
It has set a deadline for views and evidence to be submitted by June 2, with plans to report its findings in September.
Former Tory minister Tim Loughton told the Science, Innovation and Technology Committee this week: "When advances in medical technology around genetic engineering, for example, raise sensitive issues, we have debates on medical ethics, we adapt legislation and put in place robust regulation and oversight.
"The explosion in AI potentially poses the same level of moral dilemma and it is open to criminal use, for fraud, impersonation and by malign players such as the Chinese government for example.
"As leaders in AI, what should the UK be doing to balance safety with opportunity and innovation?"
Sir Patrick Vallance, a former government chief scientific adviser, told MPs that AI could have as big an impact on jobs as the Industrial Revolution.
He said the big new AI models would come from big companies "but you need to be able to probe them and understand them, so what's the core national capability that's required around that?"
He added: "And then I think there are three areas of society that needs to be thought about.
"The first is, with the large models and the potential, how do you determine what's true and what's not? As you can get replication of all sorts of things.
"And the second is there will be a big impact on jobs. And that impact could be as big as the Industrial Revolution was.
"How are we going to think about that, over a slightly longer time frame?
"And the third, of course, is what happens with these things when they start to do things you really didn't expect and what are the risks associated with that? That may be a slightly longer-term question."
It comes only days after AI "godfather" Geoffrey Hinton resigned from his job at Google, warning that "bad actors" will use the new technology to harm others and the tools he helped to create could spell the end of humanity.
In a profile by The New York Times, Dr Hinton says that "it is hard to see how you can prevent the bad actors from using it for bad things".
"I console myself with the normal excuse: If I hadn't done it, somebody else would have," he told the paper, adding that the progress made in AI technology over the last five years is "scary".
