Wednesday 13 December 2017

High noon for Bank of England in fix fiasco

Discussion expected among Bank of England's Monetary Policy Committee.
Discussion expected among Bank of England's Monetary Policy Committee.
Mark Carney, governor of the Bank of England.

Scott Hamilton

BANK of England governor Mark Carney will today face his toughest public testimony to date as he seeks to defend the integrity of an institution that's become embroiled in the currency-manipulation scandal.

MPs will grill Mr Carney after the BOE suspended an employee and released minutes of meetings showing officials knew of concerns the foreign-exchange market was being rigged almost eight years ago. The central bank said last week that an internal review had found no evidence so far that staff were involved in collusion.

The controversy marks a major test of Mr Carney's leadership after he took over the BOE less than a year ago and began overhauling its monetary policy, communications regime and structure. It's the second rigging scandal to hit the central bank following its entanglement in 2012 in the manipulation of the London interbank offered rate. Lawmakers criticised how it handled that affair, calling it naive. "The statement on the internal review is only an early staging post in what is likely to develop into a very significant issue," said Simon Hart, a lawyer at RPC LLP in London. "The statement left open as many questions as it answered. It was noticeably silent on what the bank knew about other FX market participants."

Mr Carney, along with Markets Director Paul Fisher, is due to appear before Parliament's cross-party Treasury Committee at noon in London to answer questions on the foreign-exchange inquiry and the central bank's governance. That session will follow hearings on the BOE's inflation report and Scottish independence.

The testimony comes as regulators investigate allegations that traders at the world's largest banks worked together to rig the $5.3 trillion-a-day foreign-exchange market.

The US Securities and Exchange Commission is investigating whether currency traders distorted prices for options and exchange-traded funds by rigging benchmark currency rates, sources told Bloomberg.

More than 20 traders from banks, including Deutsche Bank, Citigroup and Barclays, the three biggest currency traders, have been fired, suspended or put on leave since Bloomberg first reported in June that dealers said they shared information about client orders to manipulate foreign-exchange benchmark rates.

The suspended BOE employee, who hasn't been named, is being investigated and "no decision has been taken on disciplinary action", the central bank said last week. According to minutes of meetings released alongside that statement, BOE officials knew of concerns the foreign-exchange market was being manipulated as early as July 2006, more than seven years before regulators opened formal probes. The minutes also show BOE officials discussed with traders concerns that currency benchmarks were being manipulated. Foreign-exchange benchmarks are used to compute the day-to-day value of holdings – and by index providers.

Even small movements can affect the value of what Morningstar Inc estimates is around $3.6trn in funds. (©Bloomberg)

Irish Independent

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