Carney: Banks must learn lessons after sterling flash crash

Bank of England Governor Mark Carney has said banks must learn lessons after a report into the pound's "flash crash" partly blamed inexperienced traders.

Sterling - already under pressure after June's Brexit vote - fell by 9% to nearly $1.14 against the US dollar in the early hours of 7 October last year before recovering most of the ground lost.

An investigation into what was behind the blip was carried out by the Bank for International Settlements (BIS) - the international organisation of central banks.

Mr Carney said: "It is vital that we learn the lessons of this flash event and similar episodes in other financial markets, as orderly market functioning underpins market confidence.

"It is also important that firms have adequate governance, systems and controls and give due consideration to the potential impact of their activity on market functioning."

The report concluded that a range of factors rather than a single event were behind the move, amid thin trading on Asian markets.

Mr Carney said there were no "material losses" to key financial institutions, while spillovers to other markets were "very limited"

The report found a jump in trading volumes just after midnight caused the pound to jump sharply and may have been exacerbated by a Financial Times report about France's position on Brexit negotiations.

The slump was exacerbated by "stop-loss" orders - placed on automated platforms by investors to sell quickly in the event of a sterling fall.

It added: "The presence, outside the currency's core time zone, of staff less experienced in trading sterling, with lower risk limits and risk appetite, and with less expertise in the suitability of particular algorithms for the prevailing market conditions, appears to have further amplified the movement."

Other factors such as "fat finger" errors or potential market abuse could not be ruled out, though there was "little if any hard data to substantiate them", the report said.

It steered clear of discussing the conduct of individual banks or traders.

The sudden fall in the pound was the latest in a series of such market events in the past three years, thought to be linked to lower day-to-day risk taking by banks and a shift to automated trading.

Guy Debelle, the Australian central bank deputy governor who chairs the BIS markets committee that compiled the report, said such events "have the potential to undermine confidence in financial markets and impact the real economy".

The pound had already fallen to its lowest level against the US dollar since 1985 after June's Brexit vote by the time of the flash crash.

This week it slipped to its lowest - excluding that blip - since the referendum following remarks by Theresa May in a Sky News interview and disappointing UK trading figures.