FCA extends accountability regime to high-frequency traders
Algorithmic and high-frequency traders will be captured by an accountability regime as part of a push by the UK financial watchdog to extend rules across wholesale markets.
The Financial Conduct Authority said on Tuesday that traders working across wholesale markets at banks and building societies would now be part of the watchdog’s certification regime, which requires lenders to assess and then certify whether individuals are suitable for particular rules. They must then update annually these assessments.
The watchdog already put traders on notice in July that it wanted to extend the rules to capture them. Companies have until September to identify additional employees that will need to be assessed.
Algorithmic trading — and a form of it known as high-frequency trading, which gained in notoriety after publication of the book Flash Boys — has gained the attention of regulators as it has become a bigger part of banks’ dealing strategies. High-frequency trading is believed to have been a contributory factor in a crash of US equities in 2010.
The new certification regime replaces the old authorisation system where the regulator would preapprove individuals working in certain roles. It came under fire for not being fit for purpose from a parliamentary commission set up in the wake of the financial crisis.
The new rules capture a far larger swath of jobs but place the onus on employers to check their staff rather than the regulator. Senior managers will still need prior approval from the FCA, however.
The certification overhaul sits in tandem with the Senior Managers Regime, which is intended to improve accountability from the top down after a string of City scandals such as the manipulation of Libor and foreign-exchange benchmarks. It holds bosses to account for failings on their watch and comes into force next month.
Those scandals underscored the limits of the so-called regulatory perimeter, where certain activities were not overseen by the FCA.
“We are determined to embed a culture of personal responsibility within the banking sector. Clear individual accountability should focus minds, drive up standards, and make firms easier to run and to supervise,” said Tracey McDermott, acting chief executive of the FCA. “And if things go wrong, it will allow senior managers to be held to account for misconduct that falls within their area of responsibility.”
The most contentious part of the Senior Managers Regime — a “guilty until proven innocent” provision — was excised at the last minute by the Treasury. But instead the government said it would extend the regime across all financial services firms, including the buyside and consumer-credit companies and mortgage brokers; roughly an additional 60,000 firms.
A parallel set of rules dictating conduct will come into force next year. They cover a far broader population of City employees — including junior staff — than those captured by the certification regime, estimated at around 1m people.