Algos Face New Trading Curbs in U.K. as Regulator Reins in Risk

(Bloomberg) -- Banks and other firms may have to meet tougher requirements to manage risks stemming from algorithmic trading in the U.K. as markets become increasingly computer-driven, the Bank of England said on Monday.

Firms would need to test all algorithms before they’re used and review them periodically under the proposals, the BOE said. The central bank may also require each firm to have a “robust” internal approval process before an algorithm could be used as well as to keep an inventory of the mathematical models and risk controls.

On Monday, the Financial Conduct Authority said that some firms lack suitable oversight and testing of algorithms, even as trading is increasingly dominated by electronic strategies.

Among the FCA’s findings:

  • market abuse training is needed for staff involved in the development and implementation of algorithms
  • firms also need to consider the impact of algorithmic trading on the fair and effective operation of financial markets

The BOE proposal is open to public comment until May 7 and the central bank intends the restrictions to apply from June 30.

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