Central Bank of Ireland publishes review of firms undertaking algorithmic trading

The Central Bank of Ireland has written to CEOs of firms undertaking algorithmic trading (PDF 371.26KB) following a thematic review which assessed how such firms have complied with risk management and control framework requirements as required by regulatory technical standards for investment firms.

This letter outlines the Central Bank's expectations of firms in relation to the governance, testing and controls surrounding algorithmic trading, and has also been issued to all firms undertaking algorithmic trading, who must now take appropriate action to address the issues identified.

Algorithmic trading gives rise to significant risks stemming from potential failures of algorithms, IT systems and related processes. In recent years, a number of significant algorithmic trading failures have resulted in substantial losses, fines and reputational damage for firms globally.

Firms undertaking algorithmic trading must comply with specific regulatory requirements. The framework was introduced in 2018 and is key to protecting investors, and making the financial market resilient and transparent. As a result of the review, the Central Bank has engaged with investment firms where specific concerns have been identified, issuing specific time-bound actions called risk mitigation programmes to address issues.