By Raymond Michaels – raymond.michaels@internationalbanker.com
A Bank of England employee has been suspended this Wednesday, March 5 in relation to the continuing internal BoE investigation of claims of Forex market manipulation levied against officials. Though the Bank claims that no evidence exists that any members of its staff were involved, formal minutes documenting meetings between the Bank’s officials and foreign exchange traders from as far back as 2006 indicate that the potential rigging of the market had been discussed in detail, with at least one official aware of such activity.
Included in the minutes, made public by a formal Freedom of Information inquiry, were notes that seemingly point to the officials at BoE being made aware of rigging at the time of the meeting 8 years ago: “It was noted that there was evidence of attempts to move the market around popular fixing times by players that had no particular interest in that fix.”
Another excerpt from the 2006 minutes stated: “This was not in the interest of customers if the market was forced away from where it should be when the fixing snapshot was taken. It was noted that ‘fixing business’ generally was becoming increasingly fraught due to this behaviour.”
After the release of the minutes, an official statement was issued affirming that the BoE “does not condone any form of market manipulation in any context whatsoever.”
Minutes of a December 2013 court inquiry with the Bank’s highest-ranking officials were also part of the information released by the enquiry, where the officials focused on the allegations of price fixing within the benchmark. Despite the meeting, rates remained unchanged.
This is a revealing twist in the foreign exchange fixing scandal that has prompted global investigations. The minutes are available on the BoE’s official website ( link to official website) for public viewing.
The Bank has also said that it has now appointed an oversight committee to further investigate the allegations that its officials were involved in manipulating the Forex market or were even remotely aware of the possibility that this manipulation was taking place within the market.
This action has raised questions as to why the oversight committee was not created once the Bank’s officials were made aware of potential rigging in 2006. The suggestion that bank analysts had noticed the unusual trading movements as early as 2010 and had warned clients about it has also been brought up due to the coverage of the enquiry.
Travers Smith, a leading U.K. law firm, will be heading up the investigation for the oversight committee and will be preparing a report after the investigation has wrapped. The firm has already been involved with the investigation process; review of Bank documents, including 15,000 emails, 21,000 Bloomberg and Reuters chat-room records and in excess of 40 hours of telephone recordings.
Though the review process thus far has supported the Bank’s official statement and no evidence has been found of any kind of manipulation, the employee was still suspended. The Bank will not state if any further punitive measures will be taken against the suspended employee and continues to voice its support of the investigation.
The Bank specified that it “requires its staff to follow rigorous internal control processes and has today suspended a member of staff, pending investigation by the Bank into compliance with those processes.”
The investigation will also call into question the capabilities of the Bank’s staff with performing these finite “internal control processes” that the institution had listed as a requirement for employment; these processes of which Pat McFadden (MP-Treasury Committee) says must be followed to ensure honesty and accountability in the existing forex markets: “The reputational risks for the Bank of England in this matter are enormous.”
The Bank’s senior officials came under scrutiny last month also, as an April 2012 meeting between officials and forex traders documented regular communication between the two parties about trade deadlines in accordance to the benchmark and the prices of major currencies. The Bank stated that these meetings had been taking place every three months or more since 2005 until February of last year, but were unable to comment or give reason as to why the meetings stopped.
The benchmark, which is also known as the ‘WM/Reuters fix’, uses data to compile reports on several currencies, including the sterling, and is currently being investigated by authorities in the United States and Switzerland. These reports are calculated by the WM Company, which garners rate information from Thomson Reuters, the parents company of Reuters News. Thomson Reuters has denied any involvement in the fixing process.
The benchmark has been on the radar of such authorities after it was speculated that traders were sharing confidential client information that could alter the overall benchmark price.
The current investigation into the Bank of England is joining that of an international probe, with many authorities in various locations across the globe are already embroiled in investigations into whether traders have conspired in rigging the market. The probe has already resulted in the suspension and/or termination of 22 traders in nine banks.
This scandal brings up new fears of a repeat Libor scandal, the 2012 fraudulent reporting by the London Interbank Offered Rate (Libor) in which banks were found to be fabricating inflation or deflation of rates in order to gain profit from trades. Major U.K. bank Barclays was caught up in the Libor scandal and, including other major U.K. banks, had to pay £6 billion in connection to the Libor fixing.
MIT’s Andrew Lo said at the time that it was the greatest financial scandal of all time, though fears are now that the current Forex situation may dwarf the Libor occurrence as the biggest banking scandal in history.