On Feb. 12, the U.K. Financial Conduct Authority published a report on the supervision of algorithmic trading in wholesale markets. The report highlighted examples of good and bad practices observed within previous reviews and focused on five key areas within algorithmic trading compliance in wholesale markets:
- defining algorithmic trading;
- development and testing process;
- risk controls;
- governance and oversight; and
- market conduct.
"Automated technology brings significant benefits to investors, including increased execution speed and reduced costs," the FCA said. "However, it can also amplify certain risks. It is therefore essential that key oversight functions, including compliance and risk management, keep pace with technological advancements."
On the same day, the Bank of England's Prudential Regulation Authority unveiled a consultation paper on proposed expectations regarding firms’ governance and risk management of algorithmic trading. The consultation focused on:
- approval process by firms;
- testing and deployment;
- inventories and documentation; and
- risk management and systems and control functions.