On 18 July 2023, the Financial Markets Standards Board (FMSB) published a transparency draft of a statement of good practice for the application of a model risk management framework to electronic trading algorithms.

The purpose of the statement is to support firms in applying model risk management frameworks in a proportionate manner to models deployed in their electronic trading algorithms taking into account the nature, scale and complexity of such models as well as existing systems and risk controls intended to mitigate associated market, conduct, credit and operational risks. The statement does not detail a comprehensive model risk management framework nor does it address all risk types. Instead, it addresses a sub-set of issues associated with model risk management focussing on where market practitioners, including first line risk owners and second line risk managers, have identified that the nature of model use in electronic trading algorithms merits a differentiated approach compared with other model types.

The FMSB invites comments on the transparency draft by 22 September 2023.