This post was originally published on fca.org.uk
Market integrity
I say ‘we’ because the FCA plays an important role.
Financial services businesses and investors need confidence in markets…including their ability to withstand and recover from shocks.
That’s why ensuring the integrity of the financial services system is an FCA primary objective.
Tonight, I want to explain how we maintain it as technology accelerates exponentially. Because, while we may be getting past peak rule making, we are nowhere near peak reform or innovation. Nor past the peak intervention required to disrupt harm and support market integrity and growth.
We have seen radical technological change before… But never so widespread or disruptive. Nor combined, as now, with a new geopolitical and defence order.
The trouble is our system responds too slowly. And trust in institutions is eroded if we can’t solve problems quickly.
Regulation takes time. Legislation requires scrutiny. Parliamentary resource is precious.
Our judicial system is under immense pressure, with more litigation and weightier decisions. We risk delays becoming the norm, with legal claims written with AI’s help potentially making things worse.
We all play a part in a system that prioritises safety in process over ruthless focus on outcomes and delivery.
So, the UK finds itself in a dangerous ‘innovation delta’: where institutions tasked with regulating markets and the mechanisms holding us accountable lag behind.
If we maintain an analogue approach in a digital age, new products enter the market faster than we adapt… Leaving us reacting to, even overwhelmed by, changes rather than shaping conditions for the UK to thrive.
Take Meta Muse, launched 6 weeks ago, one of the fastest-downloaded apps in US history. Personal agents are profoundly changing how consumers interact with financial and health services. Such applications will reach UK consumers soon.
Frontier AI models are here, making it easier for AI agents to carry out tasks increasingly autonomously. You are fast adopters.
And rapid change in wholesale markets:
- decentralised finance
- 24/7 trading a reality with prices increasingly forming over weekends
- parallel market structures operating alongside traditional ones
Vast opportunities. But the threats to market integrity are as serious as I have seen them.
Unprecedented volatility, concentration risks, new forms of market abuse and rampant cross-border financial crime: fast-emerging technologies putting these on steroids.
Cyber security too mixes the frailties of human nature and high tech.
Our own AI minister recently said it was likely that at some point the UK’s systems will be breached. Which is why reporting and learning from near misses is so important. As is insurance for you, your customers and supply chain.
Prevention will not always work, so investment in recovery is a necessity. The gravity of the decision to press a kill switch may pale in significance with the enormity of the task to get a system running again.
In the face of all today’s challenges, the temptation is to say: ‘write more rules, but do it damned well faster’.
We will, where we need to… Including aligning with any national or global AI standards, which the Prime Minister has said will be a focus of the UK’s upcoming G20 presidency.
But if policymaking is our only regulatory reflex, we’ll be stuck chasing yesterday’s market instead of embracing the one in front of us.
