The Bank of England became embroiled in the escalating foreign exchange scandal after it suspended a member of staff and launched a new investigation into allegations that its officials condoned or were aware of market manipulation

Last updated: March 5, 2014 9:34 pm

Bank of England suspends employee amid forex probe

By Delphine Strauss, Daniel Schäfer, Sam Fleming, George Parker

The Bank of England became embroiled in the escalating foreign exchange scandal after it suspended a member of staff and launched a new investigation into allegations that its officials condoned or were aware of market manipulation.

The move marks the latest twist in the global probe into the $5.3tn-a-day forex industry, the largest financial market in the world.

At least a dozen authorities across the US, Europe and Asia are conducting or assisting investigations into whether traders have colluded to rig crucial price benchmarks. The scandal has so far prompted the suspension or dismissal of 22 traders in nine banks.

On Wednesday, the BoE said it had found no evidence of its staff colluding in market manipulation or sharing client information, but that it had suspended the staff member while investigating whether internal control procedures were complied with.

The BoE said the oversight committee of its Court of Directors would now lead an investigation to assess whether its officials were involved in, or aware of, any improper practices in the foreign exchange market. According to minutes released by the Bank, an industry committee chaired by its own foreign exchange traders discussed evidence of potential manipulation as early as 2006.

Mark Carney, BoE Governor, is set to be questioned by the UK parliament’s powerful Treasury select committee (TSC) next week as MPs demand assurances that its governance structures are up to the job.

Pat McFadden, a Labour member of the committee, said: “We can’t have a situation where the BoE can be the judge and jury on its own role in this. This investigation has to be conducted by someone independent of the Bank who can look at this with no vested interest.”

Andrew Tyrie, the chairman of the TSC, who has repeatedly criticised the way BoE executives are held to account internally, said the institution’s Court of Directors had not taken the initiative quickly enough in dealing with the matter. “It appears to have taken the suspension of a Bank employee for the Oversight Committee to be fully engaged,” he said.

The BoE on Wednesday “reiterated its guidance to staff regarding management of records and escalation of important information” – suggesting that the person concerned may have failed to keep adequate records of a committee meeting at which senior traders discussed practices around the benchmark fixings.

The latest investigation follows an internal review started late last year, conducted by law firm Travers Smith. The review was launched after claims emerged about an April 2012 meeting of the chief dealers subgroup.

The minutes of the meeting, chaired by Martin Mallett, the BoE’s chief currency dealer known as “the hammer” in forex circles, merely record “there was a brief discussion on extra levels of compliance that many bank trading desks were subject to when managing client risks around the main set piece benchmark fixings”.

Senior traders at the meeting were told at the time not to take notes and that there would not be minutes about this part of the debate, two people close to the situation told the Financial Times earlier this year.

The central bank has come under intense pressure to publish further details of this and previous meetings of the committee. On Wednesday, it published records of the quarterly meetings stretching from July 2005 to February 2013, which show that discussions about the fixings, and evidence of their manipulation, had taken place over several years.

In May 2008, many traders raised concerns over the opaque methodologies used to calculate benchmark prices – and the difficulties this caused in managing orders concentrated on the busiest 4pm London fix.

The BoE said its internal review had trawled through thousands of emails and chatroom recordings and more than 40 hours of phone call recordings.

On Wednesday night Mr Mallett could not be reached for comment.