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| FCA says it is watching algorithmic traders linked to pound's flash crash | FCA says it is watching algorithmic traders linked to pound's flash crash |
| (35 minutes later) | |
| The City regulator has said it is keeping a close watch on algorithmic traders of the type that may have been connected with the flash crash in the pound earlier this month. | The City regulator has said it is keeping a close watch on algorithmic traders of the type that may have been connected with the flash crash in the pound earlier this month. |
| Sterling plunged in a few minutes of early trading in Asia on 7 October, prompting the Bank of England to say it was looking into possible causes of the sudden movement. | Sterling plunged in a few minutes of early trading in Asia on 7 October, prompting the Bank of England to say it was looking into possible causes of the sudden movement. |
| On Wednesday, a senior official at the Financial Conduct Authority was asked how it regulated algorithmic trading – computers programmed to take bets on markets. | On Wednesday, a senior official at the Financial Conduct Authority was asked how it regulated algorithmic trading – computers programmed to take bets on markets. |
| Megan Butler, director of supervision at the City regulator, said: “Our approach is to recognise that a poorly designed, poorly controlled, inappropriately used algo[rithm] can have a very significant impact on proper operation of the market.” | Megan Butler, director of supervision at the City regulator, said: “Our approach is to recognise that a poorly designed, poorly controlled, inappropriately used algo[rithm] can have a very significant impact on proper operation of the market.” |
| Andrew Bailey, the chief executive of the FCA, said the use of such trading systems had been discussed with companies in the City in the run-up to the EU referendum on 23 June. | Andrew Bailey, the chief executive of the FCA, said the use of such trading systems had been discussed with companies in the City in the run-up to the EU referendum on 23 June. |
| Bailey, who took over at the FCA in July after a long career at the Bank, was setting out his “mission” for the regulator as he pledged to clean up the behaviour of major financial companies after a “very sorry” history of scandals. | Bailey, who took over at the FCA in July after a long career at the Bank, was setting out his “mission” for the regulator as he pledged to clean up the behaviour of major financial companies after a “very sorry” history of scandals. |
| There had been two financial crises in the past decade, he said, the first about the strength of the banking industry, which called into question “our financial stability at the level of the whole system”. | There had been two financial crises in the past decade, he said, the first about the strength of the banking industry, which called into question “our financial stability at the level of the whole system”. |
| “The second crisis has involved the conduct of business by financial firms,” he said, highlighting the mis-selling of payment protection insurance to individuals and interest rate swaps to businesses, the rigging of the Libor rate and foreign exchange markets, as well as breaches of money laundering rules. | “The second crisis has involved the conduct of business by financial firms,” he said, highlighting the mis-selling of payment protection insurance to individuals and interest rate swaps to businesses, the rigging of the Libor rate and foreign exchange markets, as well as breaches of money laundering rules. |
| “This is a very sorry history and the future needs to be radically different from the past. We owe this to the public, who are the consumers of financial services,” said Bailey, as he launched a consultation on the regulator’s mission. | “This is a very sorry history and the future needs to be radically different from the past. We owe this to the public, who are the consumers of financial services,” said Bailey, as he launched a consultation on the regulator’s mission. |
| His appointment followed the decision by the then chancellor, George Osborne, not to renew the contract of Martin Wheatley, the first head of the FCA when it was set up after the financial crisis. When the regulator was launched, Wheatley said he would “shoot first and ask questions later”. | His appointment followed the decision by the then chancellor, George Osborne, not to renew the contract of Martin Wheatley, the first head of the FCA when it was set up after the financial crisis. When the regulator was launched, Wheatley said he would “shoot first and ask questions later”. |
| But Bailey said he was not steering the FCA towards a different approach around regulating City firms. “I should also point out that this is not a document about Brexit. In fact, that is the only time the word appears in the document. | But Bailey said he was not steering the FCA towards a different approach around regulating City firms. “I should also point out that this is not a document about Brexit. In fact, that is the only time the word appears in the document. |
| “This is because we believe that the issues we are setting out in the mission are at the heart of financial conduct regulation, whatever we do next,” he said.. | |
| In a speech to a City audience later on Wednesday, he said any attempt to water down the rules put in place since the financial crisis should be resisted. “We should not now start to regret the policies that are in place, but remember the scale of the crisis and what has been avoided,” Bailey said. | |
| Earlier this week, a report by thinktank New City Agenda, which Bailey described as disappointing, warned that regulations were being scaled back. | |
| Bailey was speaking alongside his successor at the Bank, the deputy governor Sam Woods, who told guests at Mansion House that banks needed to make sure their business models could cope with extra regulation and the low interest rate environment. “This is a first-order issue for us,” said Woods, who is the chief executive of the Prudential Regulation Authority. | |
| “Firms need to review their business models for the new world,” said Woods, indicating that rules would continue to be implemented despite the Brexit vote. |