We’re in an era of continual volatility, says FCA head

Market shocks that used to erupt once a decade are now happening every month because technology, the dominance of big firms and tighter liquidity are increasing volatility, the City regulator was warned.
Nikhil Rathi, head of the Financial Conduct Authority, said that greater connectivity of global markets meant that blow-ups that were once relatively infrequent had become more common, meaning that regulators and firms now faced an era where “predictable volatility” was a constant.
The latest shock occurred in early August, when stock markets from Japan to the UK and the US suffered sharp falls after investors took fright at disappointing earnings from the big American technology companies and weak US labour market data. The problem was exacerbated by a jump in the value of the yen against the dollar, which prompted the rapid unwinding of a carry trade that was popular with investors, who quickly sold off Japanese assets. The Nikkei 225 suffered its worst one-day fall since Black Monday in 1987.
“Today a small blip can ripple across equities, fixed income, FX, commodities, or more recently, crypto,” Rathi said. “All more and more connected. And things that used to be one-in-ten-year events now happen every month.”
This “sharp rise in volatility” is being driven partly by the pervasiveness of technology in finance and other industries, which means that “a single glitch can run haywire through global infrastructure”, Rathi said.
“Tougher liquidity conditions add to this fragility,” he argued, as have market concentration risks. “Just ten firms represent nearly 50 per cent of the FTSE 100’s value. In the US, seven companies generated over half of the S&P 500’s 26.3 per cent return last year. And the value of Nvidia alone can move as much as half of Ireland’s GDP in a single day.”
This issue of dominance also poses risks in other ways, with big players holding commanding positions in the investment management and trading industries. “A few providers control most of the world’s data,” Rathi said. “And they increasingly partner, including through equity stakes, with a handful of Big Tech names that dominate the cloud, and now AI services too.
“This heavier reliance on fewer firms means disruption, from earnings, regulation, or geopolitics, can trip the global market.”
The August rout has put financial watchdogs into a heightened state of alert. While the problems two months ago stabilised quickly and did not escalate into a serious crisis, regulators at the Bank of England said last week that markets “remained susceptible to a sharp correction” and warned: “Valuations across several asset classes, particularly equities, quickly returned to stretched levels following the episode.”
Rathi said: “We’re still piecing together exactly what happened to understand if there are new systemic risks needing deeper examination.”
He said Britain could lead the world in ensuring the financial system can cope with future crises. The FCA is looking at ways of bolstering liquidity and is also seeking to “shift from reactive to proactive regulation”, Rathi said. He added that recent changes to the UK’s listing rules implemented by the FCA and plans to overhaul prospectuses were examples of the watchdog “challenging longstanding principles to seize the opportunities in this age of predictable volatility”.