Banks’ Algorithmic Trades May Come Under FCA Conduct Rules
Source: John Glover
People who manage trading algorithms as well as those who can approve material changes to them may cause “significant harm” to their firms and clients, the FCA said in a consultation paper published on Tuesday.
“It is important that the individuals responsible for the deployment of trading algorithms are fit and proper,” the FCA said in its proposal. They should “ensure that the algorithms are adequately tested” to assess their resilience and to make sure they don’t “contribute to disorderly markets or breach market abuse or trading venue rules.”
Events such as the “flash crash” in 2010, which wiped billions of dollars from the U.S. stock markets within minutes, have underlined the vulnerability of complex modern markets to high-speed computer-driven trading.
The FCA’s proposal came as it published final rules on existing plans to boost accountability in the banking industry, including measures to tie senior bankers’ pay and personal reputations to the fate of their firms. They include for the first time a criminal liability for reckless behavior that results in the failure of the institution.
The Association for Financial Markets in Europe, whose members include BNP Paribas SA and Deutsche Bank AG, said much work remains to flesh out the rules.
‘Fair and Effective’
“We would urge the regulators to continue to work together, and with banks, to establish final fair and effective rules in good time, so as to enable all staff to undergo the appropriate training and be clear as to their responsibilities,” AFME said in an e-mailed statement. “March 7, 2016, may no longer be a realistic commencement date for this key new regime.”
The FCA said staff advising on investments, dealing either as principal or as agent, as well as arranging deals, acting as an investment manager or as a bidder’s representative may also be brought under the certification regime.
The certification regime “applies to other staff who could pose a risk of significant harm to the firm or any of its customers,” according to the the financial watchdog. It included “staff who give investment advice or administer benchmarks,” as examples.
‘Serious Harm’
“Banks should know already which of their staff can cause serious harm to the bank or its customers,” said Andrew Tyrie, chairman of the U.K. parliament’s Treasury Committee. “If banks are doing their jobs properly, the certification regime will not therefore place a significant additional burden on them.”
The FCA is seeking to make its approach consistent across the range of activities financial firms carry out, as well as bringing in trading software that to some extent functions autonomously. While its certification regime already covers those with significant management responsibility, proprietary traders, people who take material risks and their managers, the FCA now proposes extending it to those dealing with professional clients.
The FCA’s consultation ends on Sept. 7.
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