THE Bank of England has been plunged into fresh controversy with revelations that it is investigating its own staff for possible market manipulation at the height of the financial crisis.
The Bank opened a formal investigation this summer to find out whether its staff knew of, or even facilitated, the manipulation of money-market auctions in late 2007 and early 2008, according to a report in the Financial Times.
It is the latest in a series of scandals to blight the City, coming shortly after six banks — including Royal Bank of Scotland and HSBC — were found to have tried to manipulate benchmark foreign currency prices.
The Bank of England did not escape blame and this month it published a report that was critical of its response to the forex scandal. Separately, the Bank dismissed Martin Mallett, its chief foreign exchange dealer, for serious misconduct. The Bank said that the dismissal was unconnected to the forex scandal and it is understood to have been unconnected to any kind of market manipulation, although evidence of his misconduct came to light during the forex investigation.
At the time of Mr Mallett’s dismissal, Mark Carney, the governor of the Bank of England, evaded a question about whether there were any further investigations into misconduct in markets at the Bank. “We actively review activities across a range of markets, as you would expect us to do, because, as I say, we have very high standards,” he said.
Last night, a spokeswoman for the central bank said: “If the Bank were conducting an investigation or review of any of its activities, as it does from time to time, it would be wholly inappropriate to provide a running commentary via the press.
“I can tell you that no actions have been taken or are currently being contemplated against any employee of the Bank.”
According to reports, Lord Grabiner, QC, who led the forex inquiry into the Bank, is heading the new investigation.
During the financial crisis, the Bank of England held a series of money market auctions to inject cash into the credit markets, before it embarked upon the multibillion-pound programme of quantitative easing in 2008.
Sir Paul Tucker, the former deputy governor, was head of the markets division at the time. Sir Paul was dragged into the Libor rate-rigging scandal when details of a private email exchange between him and Bob Diamond, the sacked chief executive of Barclays, came to light.
Lord Grabiner’s forex report found that no official at the Bank had been “involved in any unlawful or improper behaviour in the FX market”. However, the investigation found that Mr Mallett, who had worked at the Bank for nearly 30 years, was aware that bank traders were sharing information about client orders for the “purpose of ‘matching’ ”.
The report found that the practice was “not necessarily improper, but can increase the potential for improper conduct”.
The Times
