LONDON (Reuters) - 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 exchanges rates.
BoE Governor Mark Carney faced more than four-and-a-half hours of questioning by lawmakers on Tuesday, 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 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 legislators.
A new deputy governor position, responsible for banking and markets, would be created as part of the shake-up which will be spelled out in detail on March 18, 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 BoE said in October, shortly after Carney took over as governor in July, 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 the BoE’s 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 exchanges rates.
Carney told the lawmakers that the BoE’s top management moved quickly as soon as it learned of the allegations and it was relentless in its investigations.
The BoE last week suspended an official amid an internal review into whether Bank staff failed to flag up signs that foreign exchange traders exchanged client orders to manipulate daily benchmark exchange rates, dating as far back as 2006.
Carney, facing questions from lawmakers about the case, said he and other top officials at the BoE first became aware of the allegations on October 16 last year and he told the Bank’s governing board, its Court of Directors, 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 BoE would need to consider changing its policies and how to bring about a change of culture at the Bank. 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 BoE’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 officials and market players to discuss market issues.
It was at a sub-group of that committee that dealers raised concerns with BoE officials as early as July 2006 over attempts to move the market around the time of daily benchmark fixings.
Additional reporting by UK bureau; Writing by William Schomberg; Editing by Susan Fenton