U.K. SFO to Decide Charges in BOE Fraud Probe by Year-End

  • Bank of England probed over 2007 and 2008 liquidity auctions
  • Serious Fraud Office to decide on charges in next few months

U.K. prosecutors investigating possible manipulation of Bank of England liquidity auctions at the height of the financial crisis will decide whether to pursue charges by the end of the year, according to two people with knowledge of the situation.

The U.K. Serious Fraud Office, which announced its investigation in March 2015, is still carrying out interviews and plans to make charging decisions in the next few months, said the people, who didn’t want to be identified because the investigation is ongoing. The prosecutor has interviewed BOE employees and individuals who worked at banks involved in the auctions, the people said.

As money markets froze during the financial crisis, the BOE stepped in to provide emergency liquidity to lenders. It allowed them to swap a wider range of assets for funding through programs including its Extended Collateral Long-Term Repo Operations in 2007 and the so-called Special Liquidity Scheme, a 2008 plan that allowed banks to use an even wider range of collateral.

A central focus of the SFO investigation is whether BOE officials told lenders what prices to bid at the auctions to play down questions about the health of financial institutions.

The SFO probe started after the BOE commissioned senior trial lawyer Anthony Grabiner to conduct an internal inquiry into the auctions, the results of which the bank referred to the prosecutor in November 2014. The probe was the second scandal to emerge from the central bank that year after it was also dragged into a global investigation into foreign-exchange manipulation.

Officials at the BOE and SFO declined to comment.

The BOE strengthened safeguards surrounding its market intelligence operations in 2015 after the central bank was criticized over its handling of scandals including the manipulation of interest rates and currency benchmarks. The central bank said it’s overhauled how it interacts with market participants with more oversight of how information is gathered, used and shared.

Lloyds Fine

The SFO probe isn’t the first time behavior around the auctions has been questioned. The U.K. Financial Conduct Authority fined Lloyds Banking Group Plc 70 million pounds ($91 million) in 2014 for attempting to manipulate fees it paid to participate in the SLS program. The U.K. bank paid the BOE 7.7 million pounds in compensation.

The investigation is a distraction for the BOE, which is focused on how to respond to signs of weakness in the economy after the Brexit vote. It cut its key interest rate for the first time in more than seven years and restarted bond purchases last week as part of a bid to support demand and economic growth.

The unprecedented probe of the central bank by the U.K. fraud prosecutor is one of a number of high-profile investigations the SFO has opened in recent years. The agency is also looking at blue-chip British companies including Rolls-Royce Holdings Plc, Barclays Plc and GlaxoSmithKline Plc. In addition, Airbus Group SE said Sunday night that it’s being investigated over possible bribery connected to third-party consultants.

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