LONDON - The Bank of England’s reputation is at stake as its independent directors conduct a review into whether bank officials knew of or condoned potential manipulation of the currency markets, Mark J. Carney, the bank’s governor, told lawmakers on Tuesday.
Last week, the central bank suspended one of its own employees after a series of investigations by regulators in Britain, the United States and elsewhere into whether currency traders colluded to manipulate the $5 trillion-a-day foreign exchange markets. A staff member was suspended pending the outcome of an investigation into whether the employee complied with its internal control processes, the Bank of England said.
The central bank has to be “beyond reproach,†Mr. Carney said in testimony before the Treasury Select Committee. As a result, the bank has adopted stricter policies requiring employees to escalate internally any reports of they receive of improper conduct and to attest to whether they were aware of any potential wrongdoing in the past.
“We can’t come out of this at the back end with a shadow of doubt about the integrity of the Bank of England,†Mr. Carney said. “We will not.â€
As part of a restructuring of the organization to be revealed in detail next week, Mr. Carney said the Bank of England plans to create a new deputy governor position responsible for markets and banking.
The person’s first task will be to conduct a review of how the central bank conducts market intelligence and make sure its policies are consistently applied, he said.
Mr. Carney said the central bank was made aware of accusations regarding one of its employees by a member of the private sector on Oct. 16. That same day, Mr. Carney said that he discussed it with the Bank of England’s governors and they began an internal review.
The central bank’s general counsel also spoke with the head of enforcement at the Financial Conduct Authority, the British financial regulator, he said.
Mr. Carney said an internal review of documents, emails and other records found no evidence that Bank of England staff members colluded to manipulate the currency market or share confidential client information.
But, the central bank felt it was necessary to suspend an employee pending the outcome of an investigation now being conducted by its Oversight Committee, which is made up of the bank’s independent directors. The bank also is sharing information it uncovers with the F.C.A., Mr. Carney said.
The Bank of England has faced questions in recent months about communications between its staff members and traders on an industry subcommittee that discussed issues affecting the currency markets.
The subcommittee, which was made up of Bank of England officials, industry leaders and trade group members, met three or four times a year to discuss developments in the markets. The last time the subcommittee met was in February 2013.
One lingering question has involved how long officials have known about issue. Minutes of the subcommittee indicate that the issue of potential manipulation of benchmark currency rates was discussed by the panel as early as July 2006.
Paul Fisher, the Bank of England executive director for markets, told the Treasury Select Committee on Tuesday that the minutes were referencing traders complaining about hedge funds or others executing large orders near the so-called fix - brief periods each day when foreign exchange trades are sampled to determine key currency rates.
“It was noted that there was evidence of attempts to move the market around popular fixing times by players that had no particular interest in that fix,†according to the minutes of the July 2006 meeting.
A large trade near the fix could move the currency price dramatically and potentially cost currency dealers money since they promise to deal traders to their clients near the fix at certain times during the day, Mr. Fisher said.
“The shocking thing about this is dealers between different firms may be colluding,†Mr. Fisher said. “That’s the shocking thing†about the current investigations into the industry.
Mr. Carney said currency traders - facing pressure over the volatile nature of the markets near the fix - may have decided to game the system in order to reduce their risk.
“They decided to cheat, to make their life easier,†Mr. Carney told lawmakers. “That is not acceptable and has to be prosecuted to fullest extent of the law.â€
Regulators worldwide are looking into whether currency traders colluded to manipulate benchmark currency rates for their own benefit.
More than 20 traders have been placed on leave or fired as a result of internal investigations at several large institutions in foreign exchange trading, including Barclays, JPMorgan Chase and UBS.
Deutsche Bank, the largest player in the currency trading market, with a share of about 15 percent, and Citigroup have fired employees as a result of their own investigations.
None of the banks or any of the suspended or fired traders has been accused of wrongdoing by the authorities.
Lloyds Banking Group suspended a senior currency trader last month amid questions about whether the trader improperly shared information about a large currency trade being made by Lloyds with a trader at another company, according to a person familiar with the matter.
The suspension was reported by Bloomberg News earlier Tuesday.
“We take individual allegations of this nature very seriously and we immediately launched an investigation into the specific allegations raised,†Lloyds said. “The investigation is ongoing and at this stage it would be inappropriate to speculate on its outcome. It is group policy not to comment on individual employees.â€
