It is hard to believe, but four decades ago, London’s financial centre underwent a radical regulatory overhaul that swept away long standing restrictions on  the City of London to embrace computer based trading as well as international capital flows. The Big Bang, helped turn London into a global financial goliath to rival New York, it also ushered in an era that has tested the ability of financial institutions to keep risk and misconduct in check to their very limits.

From the collapse of Barings Bank in the 90s to UBS’s $2.3 billion rogue trading scandal in 2011, the prolonged period since has been littered with costly reminders of what happens markets fail to have the right levels of oversight. More recently, JPMorgan’s $920 million settlement over market manipulation in 2020 demonstrated that even the most sophisticated of surveillance systems are of limited use if warning signals aren’t properly looked into.

Today’s trading environment is faster and more automated than ever before. Securities are bought and sold in a matter of milliseconds across borders and time zones, but the systems financial institutions use to show full compliance have not necessarily evolved at the same pace. Across many financial institutions, the technology overseeing modern markets remains disparate. It is not uncommon for an investment bank to use one system to monitor trading positions, another to identify potential market abuse, and  a third to manage regulatory disclosures. Each performs an important function, but they do not necessarily communicate effectively with one another. As markets have become more and more globally interconnected, the infrastructure overseeing them has remained, highly disconnected.

In the 40 years since the Big Bang, trading has undergone major revolutions, but compliance has struggled to keep pace with ever more complicated markets. Financial institutions operating internationally are having to manage vastly different reporting requirements. If this wasn’t enough, the imminent expansion of trading hours in the cash equities space means that regulatory obligations will not suddenly go away when compliance teams clock off for the working day.

Consider an asset manager trading across London, New York and Singapore. A large trading position accumulated overnight could trigger a disclosure requirement, while unusual activity might warrant investigation. Identifying these issues is difficult enough, but having to do so when relevant information sits across multiple systems makes the challenge even harder.

Then there are the vast swathes of information financial institutions now need to deal with. Modern surveillance systems generate enormous numbers of alerts. Many are harmless erring on the side of caution, but compliance professionals still have to spend hours investigating false alarms while more significant and real risks compete for attention. It’s the regulatory equivalent of fire department being called out every time food burns on an unattended stove.

The industry needs to start thinking about how it can bring monitoring, reporting and surveillance together to better help financial institutions identify risks earlier, as opposed to investigating failures after the event. If these three elements can work in tandem through consistent data and more integrated workflows, then compliance teams would certainly have a much clearer understanding of where risk is residing.

The original Big Bang transformed the City’s ability to compete by modernising how markets operated, its sequel should prompt an equally ambitious rethink of the infrastructure supporting those markets. It is hard to imagine London’s next competitive advantage coming from making trading even faster than it is today, but it may just come from ensuring that oversight can keep pace with whatever the next front office innovation is. If the first Big Bang fundamentally changed how the City trades, perhaps the next forty years will be centred around how risk is managed.