Bank of England tightens internal rules after FX investigation
By David Milliken
LONDON (Reuters) - The Bank of England announced tougher rules for its staff who speak regularly with bond and currency traders, after a review last year showed a senior member of staff had turned a blind eye to market malpractice.
The BoE said on Thursday it would set out the terms of the Bank's engagement with market participants, provide better training for staff, improve note-taking and form a new committee to oversee the way it gathers intelligence from the market.
The Bank sacked its chief foreign exchange dealer in November due to serious misconduct, although it said his dismissal was unrelated to his failure to tell his boss about signs that banks were rigging the $5 trillion-a-day currency market centred in London.
Six major banks were fined more than $4 billion by regulators around the world for trying to manipulate daily foreign exchange rates used as benchmarks by their clients.
The BoE said on Thursday that staff involved in what it calls "market intelligence" work now had better training about when they should report concerns about malpractice.
"Staff now actively follow the process for escalation of concerns about potential evidence of misconduct received during market intelligence conversations," it said in its review of market intelligence.
Since March 2014, 42 potential concerns had been forwarded to the appropriate authority, it added.
The BoE has broad duties for setting monetary policy and financial supervision. While it is not directly responsible for spotting misconduct in markets, it takes a greater interest in financial market trends than some other central banks.
Deputy Governor Minouche Shafik said market information was vital for the BoE to assess the stresses caused by shock events such as the halving of global oil prices since last June and the removal of the ceiling on the Swiss franc.
"But the expanded responsibilities of the Bank have also revealed that elements of our approach need to be strengthened," Shafik said in a speech. She said a recent independent report showed "concern that the Bank's systems and controls have not always kept pace with the changing role of the Bank".
The BoE said it had addressed all the report's concerns.
Lawmaker Andrew Tyrie, who chairs a parliamentary Treasury committee, cautiously welcomed the BoE's tighter controls. "But it will have to make sure that these don't choke off high-quality market intelligence," he said.
The BoE said it needed to make clear when it spoke with contacts whether it was acting in a market intelligence or a supervisory role, though it said contacts should also be aware that information could be shared with regulators.
"It is important that distinct supervisory and market intelligence relationships are preserved, and that the difference between market intelligence and regulatory or supervisory conversations are clear," the BoE review said.
(Reporting by David Milliken and William Schomberg; Editing by Mark Heinrich)
