The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have published reports on proposed expectations regarding a firm’s governance and risk management of algorithmic trading in wholesale markets.
The FCA report summarises the key areas of focus for algorithmic trading and highlights areas of good and bad practice observed within previous cross-firm reviews, whilst the PRA publication is a formal consultation on a supervisory statement which sets out expectations for the prudential aspects of risk management and governance of algorithmic trading at PRA regulated firms.
Automated technology brings significant benefits to investors, including increased execution speed and reduced costs. However, it can also increase certain risks, so it is essential that key oversight functions, including compliance and risk management, keep pace with technological advancements.
The FCA will continue to work with the PRA to ensure coordinated approaches going forward.