Algo Trading Controls and Governance Working Group Minutes 28th November 2022

Objective

To discuss aspects of the two previous sessions that were not fully covered and to look forward into 2023 and beyond.   

Topics included:

  • Perceived Problems in the 3LoD Model
  • Process Controls and Systematic Controls Complexity
  • Attracting and Retaining the Right Skills
  • Value of Risk Controls

Perceived Problems in the 3LoD Model

Industry Context:

  • The industry has adopted the model and has made its best attempt to segregate activities in line with the model.
  • Regulation very clearly states banks need to have a first line, second line and third line of defence in place, and the regulation is prescriptive about the involvement of both Risk and Compliance.
  • There have been efforts to improve communication lines and share assets between the lines of defence.
  • Algo trading has implemented the 3LoD model more robustly than other businesses because of MiFID II and RTS 6 requirements.

Challenges:

  • There is a perception that the rigidity of the 3LoD model has created some challenges when it is implemented by an organisation.
  • There is some redundancy between the first and second line because the second line has a requirement to oversee and monitor the first line’s activities.
  • A lot of time is being taken developing and increasing the level of confidence that the second line has in the first line.
  • Executives are fatigued with multiple reports sent out from the various lines.
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