The Bank of England has opened a review into allegations officials condoned practices at the heart of the currency-manipulation scandal, as lawmakers demand an inquiry into what the regulator knew.
The central bank has hired lawyers to establish whether officials told traders at an April 2012 meeting it wasn’t improper to share impending customer orders via chat rooms, Andrew Bailey, chief executive officer of the Bank of England’s Prudential Regulation Authority, told lawmakers in London today.
Bloomberg News reported last week that senior currency dealers at banks including Citigroup Inc. and UBS AG told central bank officials at the 2012 meeting that they discussed their positions ahead of key benchmarks and matched buyers and sellers ahead of the fix to avoid trading then. Bank of England representatives said they viewed the practices as positive to reduce market volatility and banks should formulate their own policies, three people with knowledge of the matter said.
“The governors of the bank have taken claims of the meeting with officials very seriously,” Bailey told members of parliament at a Treasury Select Committee hearing. “The Bank of England does not condone any form of market manipulation.”
The allegations drag the Bank of England into another market-rigging scandal two years after it was criticized by politicians for failing to act on warnings that Libor was vulnerable to abuse. The central bank had no responsibility for regulating U.K. lenders at the time, authority it received in April 2013.
Lawmakers are calling on the government to open an inquiry into what exactly the Bank of England knew about practices in the $5.3 trillion-a-day currency market.
“It seems to me that us in parliament have not been told the whole truth,” John Mann, a Labour party lawmaker and member of the Treasury committee, said in an interview with Bloomberg Television’s Francine Lacqua today before the hearing. “We keep asking questions of who knew what and what was done about it and getting bland denials that anyone knew anything. I think we’re going to have some pretty fiery sessions later on.”
Dealers at the meeting were told not to record the discussion or take notes, one of the people said. One trader wrote down what was said soon after leaving because of the concerns spawned by investigations of attempted manipulation of the London interbank offered rate, or Libor, the person said. Those notes have been handed to the Financial Conduct Authority.
“We haven’t seen the evidence in the Bloomberg report,” Bailey said. The central bank first heard about the allegations that officials condoned collusion in October and began the inquiry then, he said.
According to a Bank of England summary of the meeting compiled in July 2012, there had been “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.”
During the discussion, traders said they used chat rooms to match buyers and sellers ahead of the fix to avoid trading at one of the most volatile periods of the day, the people said. That required them to share aggregate positions. They instigated the discussion because they were concerned that similar practices were under scrutiny at the time in the Libor investigations, the people said.
At least a dozen regulators on three continents are now investigating whether chat rooms were used by banks to manipulate exchange rates. Two of the dealers present at the meeting are among more than 20 currency traders across the industry to have been fired or suspended.
The Treasury Select Committee, a cross-party group of 13 lawmakers, has the power to call regulators and bankers as witnesses and propose reforms. It criticized the Bank of England in 2012 for failing to heed warnings that Libor was vulnerable to abuse.
The question is “whether the traders were having general chit chats about market views, or were actively colluding to shape a market,” Mark Garnier, a Conservative lawmaker and committee member, said by e-mail yesterday. “One is dubious; the other illegal. What concerns me is that the BOE may well have interpreted the latter as the former and let it slip, and that is a problem.”
UBS spokeswoman Hana Dunn and Citigroup spokesman Jeffrey French declined to comment.
“I think the TSC will certainly want to look into this further,” Andrea Leadsom, another committee member and a Conservative Party member, said.
The U.S. Justice Department, the Federal Reserve, the Swiss Competition Commission and the European Commission are among more than a dozen authorities on three continents investigating currency-trading practices.