FCA Warns of “Predictable Volatility” as Market Disruptions Increase
The CEO of the UK’s Financial Conduct Authority (FCA), Nikhil Rathi, has warned that global regulators and financial institutions must be prepared for an era of “predictable volatility” as interconnected markets experience increasingly frequent shocks. Speaking at London’s International Capital Markets Conference, Rathi highlighted that recent financial disruptions—including the collapse of major banks like Credit Suisse, the British gilts crisis, and geopolitical unrest in the Middle East—are no longer isolated incidents, but part of a broader trend of heightened volatility.
Rathi emphasized that today’s market turbulence is driven by a combination of digital interconnectedness and the concentration of power among a few global players, particularly in technology and investment sectors. “Today a small blip can ripple across equities, fixed income, FX, commodities, or more recently, crypto. All more and more connected. And things that used to be one-in-10-year events now happen every month,” he said.
For treasury leaders, the implications of Rathi’s statement are significant. With financial markets more interconnected than ever, even minor disruptions can have wide-ranging effects across various asset classes. This means treasurers will need to re-evaluate their risk management frameworks, ensuring they are equipped to handle the cascading effects of market shocks that span across foreign exchange, liquidity, and even crypto exposure.
Rathi also discussed how the FCA is adapting its regulatory approach to accommodate this new environment. The watchdog is pursuing reforms aimed at boosting liquidity and supporting a “new mindset towards risk,” focusing on ensuring that the UK’s financial markets remain both competitive and resilient. This is a critical point for treasurers, particularly those in multinational firms, as they navigate regulatory changes that could impact liquidity management and cross-border financing.
The FCA has a challenging mandate to balance supporting the competitiveness of the UK’s financial sector with maintaining financial stability and protecting consumers. This balancing act has become even more critical as London faces growing competition from rival financial centers like New York and Singapore. British politicians are keen to revitalize London’s status as a leading financial hub, especially post-Brexit, and this drive is reflected in the FCA’s regulatory agenda.
In a broader context, Prime Minister Keir Starmer’s newly elected Labour government is also looking to stimulate UK economic growth. Starmer has made attracting foreign investment a key pillar of his strategy and is set to meet international investors later this month to outline the government’s plans. The involvement of foreign capital will be crucial in achieving the government’s ambitious economic targets, but it also means that financial stability is paramount to avoid deterring potential investors.
For treasury teams, Rathi’s warning about “predictable volatility” should serve as a cue to stress-test their liquidity positions, review hedging strategies, and build in more flexibility to adapt to sudden shifts. With regulatory reforms on the horizon and political dynamics influencing capital flows, staying agile will be key to managing both risks and opportunities in the evolving landscape of global finance. As Rathi concluded, institutions need to anticipate and plan for volatility as a constant, not an exception.