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LONDON (Reuters) - The Bank of England suspended a staff member on Wednesday as part of a probe into what it knew about alleged manipulation of world currency markets and revealed that rigging allegations had been flagged as far back as mid-2006.
The so-called fixings that are at the center of a global investigation into allegations of manipulation by traders are used to price trillions of dollars worth of investments and deals and relied upon by companies, investors and central banks.
What the British central bank knew about practices in its role monitoring the largely unregulated $5.3 trillion-a-day currency market has become a focus of a probe into alleged collusion between dealers at some of the world's biggest banks.
Regulators have said the alleged foreign exchange manipulation is as bad as the Libor interest rate rigging, which has resulted in banks shelling out $6 billion in fines and settlements and criminal cases being brought against some individuals.
A BoE internal review had so far found no evidence that its staff colluded in any manipulation or shared confidential client information, the central bank said on Wednesday.
"However, the Bank requires its staff to follow rigorous internal control processes and has today suspended a member of staff, pending investigation by the Bank into compliance with those processes," it said in a statement.
"The Bank has today re-iterated its guidance to staff regarding management of records and escalation of important information," it added.
A bank spokesperson declined to comment on the identity of the individual or give further details about the suspension.
In a separate development, the BoE confirmed that regular meetings between chief currency dealers in London and BoE officials, which had been held since 2005, were discontinued in February 2013, shortly before media reports of the allegations first surfaced.
Minutes of all the meetings of the Foreign Exchange Joint Standing Committee's chief dealers subgroup (CDSG), which was set up in 2005 to discuss industry affairs, say allegations of possible manipulation of fixings were first raised in July 2006, nearly seven years before concerns became public.
"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," the minutes, released by the BoE in response to a Freedom of Information request, say.
"This was not in the interest of customers if the market was forced away from where it should be when the fixing snapshot was taken. It was noted that ‘fixing business' generally was becoming increasingly fraught due to this behavior," the minutes of the meeting on July 4, 2006 said.
At the center of the probe involving Britain's Financial Conduct Authority (FCA) and the U.S. Department of Justice are allegations that senior traders shared market-sensitive information relevant for the London fix, which is set at 4 p.m. London time, using actual trades.
The key benchmark, known as the WM/Reuters fix, relates to several exchange rates, including the euro, sterling, Swiss franc and yen. They are compiled using data from Thomson Reuters and other providers, and are calculated by WM, a unit of State Street Corp.
Thomson Reuters is the parent company of Reuters News, which is not involved in the fixing process.
London is the hub of the global currency market, accounting for some 40 percent of the trillions of dollars traded on an average day.
The CDSG, which the minutes show held several meetings in restaurants around London's financial district, last convened in February 2013, even though a meeting had been scheduled for the following July. Media reports of allegations of FX market manipulation first surfaced in June. A Bank spokesperson was unable to say why the meetings with chief dealers had stopped or at whose behest.
The Bank's internal review began in October last year and has to date examined around 15,000 emails, 21,000 chat-room records and more than 40 hours of telephone call recordings.
Britain's Financial Conduct Authority (FCA) and the U.S. Department of Justice also formally opened investigations in October last year. They are among regulators around the world looking into possible wrongdoing in the FX market.
More than 20 traders have been placed on leave, suspended or fired by banks in recent months, including the chief dealers at currency trading giants Citi, JP Morgan Chase, Barclays and UBS.
"Alarm bells should be ringing when a central bank suspends staff in connection with market rigging," said Simon Morris of law firm CMS. "This is serious, because the whole basis of regulation is based on trust and integrity."
Martin Wheatley, chief executive of Britain's FCA, said the allegations are "every bit as bad" as those in the Libor scandal.
The Libor investigation is still ongoing but reached its zenith in mid-2012, when Barclays chief executive Bob Diamond resigned and then BoE deputy governor Paul Tucker gave testified in front of UK lawmakers.
Reporting by Jamie McGeever and William Schomberg; Editing by Alexander Smith and Mike Dolan/Larry King