Big bang at 40: the city I joined, the city we have today

When I joined this industry in my twenties, before Big Bang on 27 October 1986, the City had a system often described as ‘gentlemanly capitalism’, based on reputation, personal relationships and informal discipline. 

“My word is my bond” was the long-served traditional motto of the London Stock Exchange, reflecting a time when floor trades worked on verbal trust. Those whose word was not their bond were suitably cold shouldered, but such self-regulation has progressively evaporated. 

I am a little nostalgic for that aspect that has changed over my working life. However, I am not nostalgic for the time when professional women’s roles were generally confined to regulation and human resources. Now there are “Ladies” loos on the management floor. 

Evolution of regulation

Since then, regulation of the City of London has undergone a remarkable transformation. 

The central paradox is that Big Bang deregulated the structure of financial markets, but the following 40 years have seen an enormous expansion in financial regulation. 

In 1986, regulation focused on who could participate in markets and how securities could be traded. Today, regulators supervise capital, liquidity, conduct, governance, market abuse, operational resilience and individual accountability. 

The six major phases of regulation have been:

1986–1997: The Big Bang and the Financial Services Act 1986, fostering competitive markets supported by a new statutory framework and substantial self-regulation.

1997–2007: The creation of the Financial Services Authority (FSA) and the Financial Services and Markets Act 2000, consolidating financial regulation into one principal regulator.

2008–2012: Global financial crisis and subsequent banking reforms, which resulted in much tougher capital, liquidity, and risk-management requirements.

2013–2019: The Financial Conduct Authority and Prudential Regulation Authority separated bank safety from conduct, forcing banks to separate retail deposits from risky trading under strict Basel III and MiFID II rules.

2020–2024: Brexit: UK gained the power to replace inherited European Union financial laws with its own rules designed to reduce red tape and boost growth.

2025–2026: Emphasis on competitiveness, growth, and regulatory simplification –  balancing financial stability, investor protection, and London's international competitiveness.

These phases of regulation led to a number of changes:

Positive effects 

Trading costs fell and liquidity improved, while London attracted substantial international banking capital and securities trading volumes increased. As a result, the City strengthened its position in international finance and the financial services sector expanded significantly.

There was a wonderful bull market in UK equities until the end of the century, with positive cash flows into defined benefit pension schemes enabling IPOs and helping large companies to scale. Britain also led the way in the globalisation of investment management. Equities boomed as inflation gave desultory returns to bond investors, while UK national debt became less significant.

Negative effects 

Many independent British stockbrokers disappeared while overseas banks acquired much of the UK's investment banking industry.

Integrated banks created new conflicts of interest between clients and proprietary trading, while the growing complexity and risk-taking of financial institutions contributed to vulnerabilities that were subsequently exposed during the 2007-09 financial crisis.

Was Big Bang successful? 

In many respects, yes, although it had significant longer-term consequences. 

The City I joined was full of capitalists with partnerships and start up brokers and fund managers. They had automatic risk awareness, commercial nous and managed for the long term. The City is now largely remunerated by bonuses and not profit shares. 

Between 1986-97 the City operated under the Financial Services Act 1986, with statutory oversight combined with substantial industry self-regulation. 

I would contend that a second Big Bang was this removal of self-regulation and the creation of the FSA in 1997. This coincided with the abolition of Advance Corporation Tax (ACT), as well as the decline of the defined benefit pension scheme. It certainly cannot entirely be blamed for the subsequent dull decade, but it must be more culpable than Big Bang. 

The profound difference between self-regulation and an independent regulator is that there was previously a motivation to self-regulate – to ensure the health of the professional market participants – whereas the FSA and FCA have been more motivated to protect the investor. 

Of course both are important. But I passionately believe it is in the general public’s interests to have a strong City which in turn generates lots of tax, contributes to a strong economy and funds real businesses. I believe that somewhere along the lines, this bigger picture has been missed. 

• These are the personal views of Katie Potts and do not necessarily reflect the views of Aberdeen Investments.
• This article originally appeared in Investment Week here.