Not reflecting well on the BOE.

Photographer: Chris Ratcliffe/Bloomberg

U.K.'s Half-Hearted Currency Probe

Mark Gilbert is a Bloomberg View columnist and writes editorials on economics, finance and politics. He was London bureau chief for Bloomberg News and is the author of “Complicit: How Greed and Collusion Made the Credit Crisis Unstoppable.”
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It's bad enough that the Bank of England's chief currency trader ignored clear evidence of market manipulation in the foreign-exchange market for six long years. What's truly appalling is that the subsequent probe into the abuse seems to have been done on the cheap, making a mockery of the inquiry and belittling the damage done to the world by yet another financial scandal. 

The Treasury Select Committee, a parliamentary panel with the power to summon and interrogate witnesses, is dissatisfied with the answers it got from the chief investigator in the probe, Lord Anthony Grabiner. Grabiner was described as "the worst witness I’ve ever seen" by Mark Garnier, a member of Parliament and former stockbroker. Committee Chairman Andrew Tyrie threatened to recall Grabiner for a second grilling; unfortunately, the U.K. election is so close that the committees are likely to disband around the end of March, letting Grabiner off the hook. 

Broken Benchmarks

Here's what happened. The Bank of England commissioned an eight-month investigation that scrutinized 1.8 million documents and 87,000 phone calls, and cost 2.93 million pounds ($4.4 million). Grabiner's report was published Nov. 12. That same day, fines of $4.3 billion were levied on six banks for colluding to rig currency rates. Two weeks ago, the committee held a televised hearing to question Grabiner. The most fractious exchanges in a bad-tempered to-and-fro explain why Grabiner, a lawyer who also happens to be a life peer in the House of Lords, should face a second examination. 

Asked what qualified him to lead the investigation, Grabiner cited his work in "commercial law cases for a very large number of years." After confusing the trading floors common to most investment banks with the trading pits abandoned by most futures exchanges years ago, Grabiner batted away further questions about his currency-market knowledge by pointing out that "in so far as I needed an explanation of the way the market worked, I did have access to an expert." 

Too bad that Grabiner only met with this expert once during the entire probe. "I had one meeting with him," Grabiner said. "That was all I needed to know in order to do the job properly." 

There was some lively back-and-forth about a particular telephone conversation between an unidentified trader and the Bank of England's chief dealer, Martin Mallet, in which the trader seems to be trying to blow the whistle on malpractice in the currency market. It turned out, to the obvious incredulity of Tyrie, that Grabiner hadn't listened to the recording of the call; he'd only read the transcript. 

The panel was understandably concerned that the nuances of such an exchange are impossible to interpret without the audio. Discussion of that conversation degenerated into a verbal slugfest, with Grabiner banging his desk in frustration. Just because the unidentified trader approached the chief dealer at the central bank to discuss market manipulation didn't mean it was about the wrong kind of manipulation, Grabiner said. "You might manipulate something perfectly lawfully," Grabiner said, using the example of a large equity transaction in which the shares are "dribbled" into the market to avoid moving the price.

When a committee member challenged him that no reasonable person would describe that as manipulation, and that the only possible reason anyone would be calling the central bank is because they suspect wrongdoing, Grabiner pulled rank, pointing out that the MP didn't have a "judicial mind" to make up on the matter. "Repetition of the question is not going to get a different answer," he said. "You persist in wrongfully interpreting the word manipulation. I do not accept the spin that you are putting on that word. You are wrong."

The committee then questioned who actually did the work, and how much time was spent interviewing witnesses versus reading evidence or talking to regulators. Grabiner said a "junior" in his chambers assisted him; as to who spent time doing what or how many hours were spent collectively on the case, "I haven't the faintest idea," he said.

The thrust of that questioning helps explain the somewhat bizarre opening of the committee's meeting; while Grabiner didn't want to get into the "grubby world" of what his fees were, Tyrie pressed him, and demanded that the costs be made public.

That came last week, with the revelation that the total included 401,000 pounds for Grabiner -- a "very attractive" discount, he told the hearing -- with more than 107,000 pounds for his junior barrister. That arouses the possibility that cut-rate work was done for a cut-rate fee -- and the tone of the hearing suggests that the Treasury Select Committee shares those suspicions.

As the MP Garnier said at the time, "The evidence session did not suggest to us that this was somebody who was on top of the report and on top of the brief.” It will be a shame if the committee can't find the time to do more digging with Grabiner. Otherwise, it really does look like the injustices of the currency-rigging scandal have been followed by a half-hearted study of the Bank of England's shortcomings in the affair. 

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