FCA finds shortcomings in algorithmic trading controls

The Financial Conduct Authority has found significant variation in how firms comply with their algorithmic trading control obligations. An FCA review has concluded that, while most firms have a good understanding of their obligations, there are shortcomings in governance, testing, deployment and market abuse surveillance. Firms should use the findings to strengthen their compliance standards.

Multi-firm review of algorithmic trading controls

The FCA’s review looks at how ten principal trading firms comply with their obligations under RTS 6, i.e. regulatory technical standards under the UK MiFID framework. Its report includes examples of good practice alongside areas where there is room for improvement. The findings show that firms vary significantly in their level of compliance with their obligations under RTS 6.

This is not the first time that the FCA has highlighted concerns in this area. The FCA previously reviewed algorithmic trading in wholesale markets in 2018. More recently, it wrote to CEOs at principal trading firms in which it listed algorithmic trading as one of its supervisory priorities.

Key findings from the FCA’s 2025 review

Governance

• Out-of-date policies and unclear processes and documentation indicate a lack of formal governance and accountability.
   
• Some Compliance teams do not have as strong technical knowledge of algorithmic trading or are less involved in key algorithmic trading processes than others. 
   
• In some firms, the algorithmic inventory does not specify who is approved to operate the algorithm.
   
• Some firms have not clearly documented the definition of a material change and do not provide enough management information to their board about deployments.

Development and testing

• Some have poorly defined procedures for conformance testing, resulting in poor record-keeping practices.
   
• Simulation testing often lacks sophistication and tends to focus on operational effectiveness rather than conduct risks.
   
• Some firms lack formal documented procedures for the deployment of algorithms, combined with unclear ownership of key elements of the deployment process.

Risk controls

• Ownership of pre- and post-trade controls is sometimes poorly defined.

Market abuse surveillance

• Some firms have not done enough to update or invest in their market surveillance systems to keep up with the nature, scale and complexity of their trading activities.
   
• Some firms do not have formalised procedures or governance structures to investigate market abuse alerts.

Next steps

The FCA promises to continue monitoring algorithmic trading controls as part of its supervisory work.

For example, it warns firms that testing capabilities should keep pace with the ever-increasing complexity and speed of financial markets and technological advancements. It also encourages firms to make sure that they clearly document individual responsibilities and keep this under review.

The review published on 21 August 2025 is available here.