Bank of England comes under fire for lax control over rigging
Governor vows to overhaul the institution amid criticisms of the bank's response to signs of possible manipulation of currency benchmarks
The Bank of England will overhaul the way it works with banks and financial markets as it faces criticism of its response to signs of possible manipulation of foreign exchange rates.
Bank governor Mark Carney faced more than 41/2 hours of questioning by lawmakers yesterday, a large part of which was devoted to the bank's response to allegations that key currency benchmarks had been rigged.
"This is as serious as Libor [London interbank offered rate] if not more so because this goes to the heart of integrity of markets and we have to establish the integrity of markets," Carney told them.
A new deputy governor position, responsible for banking and markets, would be created as part of the shake-up, which would be spelled out in detail next Tuesday, he said.
"One of the first tasks of that individual is that he or she will conduct a root-and-branch review of how we conduct market intelligence," Carney said.
The Bank of England said in October, shortly after Carney took over as governor, that it had hired consultants McKinsey to advise on a strategic review to reflect the bank's expanded powers to oversee the banking sector.
The bank currently has three deputy governors, one for monetary policy, another for financial stability and a third in charge of oversight of commercial banks.
The case for change at the bank has grown stronger since allegations that staff might not have acted on signs of possible manipulation of foreign exchange rates.
Carney told the lawmakers that the Bank of England's top management moved quickly as soon as it learned of the allegations and it was relentless in its investigations.
The bank suspended an official last week amid an internal review into whether staff had failed to flag up signs that foreign exchange traders exchanged client orders to manipulate daily benchmark rates, dating as far back as 2006.
Carney, facing questions from lawmakers about the case, said he and other top officials at the bank first became aware of the allegations on October 16 last year and he told the bank's governing board on the same day.
"We convened governors, we decided to launch an investigation within 48 hours, we retained external counsel and they had begun a very thorough, systematic, relentless investigation," he said.
Carney said the bank would need to consider changing its policies and how to bring about a change of culture. The new strategic plan would include measures to "reinforce the positive cultural changes that have happened in the institution", he said.
Paul Fisher, another member of the Monetary Policy Committee who was previously the Bank of England's head of foreign exchange, said he only learned of the allegations of manipulation last year.
In his previous role, Fisher chaired the Foreign Exchange Joint Standing Committee, a forum for Bank of England officials and market players to discuss market issues.
It was at a sub-group of that committee that dealers raised concerns with Bank of England officials as early as July 2006 over attempts to move the market around the time of daily benchmark fixings.
