LONDON (Reuters) — The Bank of England
announced an overhaul of the way it works with banks and financial
markets on Tuesday as it faced growing criticism of its response to
possible manipulation of foreign exchange rates.
BoE Governor Mark Carney answered questions from lawmakers for
four-and-a-half-hours, a large part of which was devoted to the
Bank's response to allegations that key currency benchmarks had been
Carney said a new deputy governor position, responsible for banking
and markets, will be created as part of the shake-up.
"One of the first tasks of that individual is that he or she will
conduct a root-and-branch review of how we conduct market
intelligence," Carney said.
Details of the new structure will be announced on March 18.
As lawmakers seized on the case to revive their demands tougher
oversight of the BoE, Carney stressed the seriousness of the foreign
exchange case and compared it to the Libor interest rate-rigging
scandal. This resulted in criminal charges against traders, the
resignation of Barclays' chief executive and $6 billion in
settlements paid by banks.
"This is as serious as Libor if not more so because this goes to the
heart of integrity of markets, and we have to establish the
integrity of markets," Carney told legislators.
The BoE suspended an employee last week as part of its internal
investigation into whether staff turned a blind eye to signs of
manipulation in the $5.3 trillion-a-day global market, for which
London is the main hub.
The BoE and other leading authorities including Britain's Financial
Conduct Authority (FCA) and the U.S. Department of Justice opened
investigations into the allegations last October.
More than 20 currency traders at several of the world's biggest
banks have been placed on leave, suspended or fired.
Minutes of BoE meetings with chief foreign exchange dealers released
last week, in response to a Freedom of Information request by
Reuters, showed concerns over possible manipulation were raised as
early as 2006.
With lawmakers demanding details of how the Bank responded to the
case, Carney said on Tuesday that the BoE's top management moved
quickly as soon as it learned of the allegations and it was
relentless in its investigations.
He said he and other top officials first learned of the allegations
on October 16 last year and he told the Bank's governing board, its
Court of Directors, on the same day.
"We convened governors, we decided to launch an investigation within
48 hours, we retained external counsel and they had begun a very
thorough, systematic, relentless investigation," he said.
But the chairman of Tuesday's hearings said the BoE had to do more
to show that its "Byzantine" oversight structures were up to the
"This is the first real test for the Bank of England's new
governance structures. Early signs are not encouraging," lawmaker
Andrew Tyrie said in a statement.
Since he took over the BoE in July last year, Carney has
introduced several changes, including most notably the launch of its
forward guidance policy that seeks to give a clear picture of when
it might start to raise interest rates.
The case for structural change at the Bank has grown stronger since
the foreign exchange allegations.
The BoE last year hired consultants McKinsey to advise on a
strategic review to reflect the Bank's expanded powers to oversee
the banking sector.
The Bank currently has three deputy governors, one for monetary
policy, another for financial stability and a third in charge of the
BoE's oversight of commercial banks.
Paul Fisher, another member of the Monetary Policy Committee who was
previously BoE's head of foreign exchange, said he too only found
out about the allegations last October.
He said the alleged collusion being investigated now was different
to discussions around possible manipulation of the "fixings" by
non-market makers such as hedge funds as far back as 2006.
Fisher hit back at criticism from lawmakers that the BoE did not
respond more vigorously and played down suggestions it should
investigate potential trading abuse more broadly, something which
falls to the FCA, Britain's main market regulator.
"It's not our job to go hunting for the rigging of markets," he said
when asked if the Bank had taken action in other markets in light of
the concerns over possible FX manipulation.
FCA Chief Executive Martin Wheatley said the BoE was not being
investigated as an institution but, in a letter to Tyrie made public
on Tuesday, he said the FCA did have the authority to take action
against BoE staff if needed.
(Additional reporting by UK bureau;
writing by William Schomberg and Jamie McGeever; editing by Susan
Fenton and Alison Williams)