The Bank of England has been criticized for its complacency regarding forex rate fixing. Members of Parliament have raised concerns that the bank failed to promptly look into allegations that market transactions were being rigged as far back as 2006.
According to a report published in the Financial Times, the Treasury Select Committee has spoken to both Mark Carney and Paul Fisher, the head of markets at the Bank of England, about the fact that the bank was made aware of rate rigging as early as 2006 but chose to take no action for several years. Fisher apparently insisted that he heard nothing about the scandal until 2013.
Too Slow to Respond?
Fisher explained that while he heard traders complaining about difficulties, he heard no specific allegations about market rigging until the scandal broke. Treasury Committee Chairman Andrew Tyrie believes that this is not the case, however, and cited minutes from a meeting in July 2008 in which the London FX fix was referred to as being potentially subject to manipulation.
Conservative MP Andrea Leadsom feels that there should have been some alarm bells going off at the bank. She said that the markets were being handled either complacently or naively, and that manipulation should have been noticed long before October 2013.
Individual traders use tools such as the iforex trading software to handle their trades online almost instantaneously, but many banks make large trades on the behalf of their clients, and this is where the manipulations come from. In October 2013 evidence was discovered which showed that some traders had been using online chat rooms to co-ordinate their trades in order to manipulate foreign exchange rates.
By timing specific trades to coincide with the spot rate fix, traders were able to get better rates for certain currencies. Leadsom feels that when the news broke the Bank of England should have looked back at previous concerns and investigated them more closely.
A Test for Carney
Fisher responded to Leadsom’s allegations by stating that the minutes from 2008 did not suggest that there was collusion between foreign currency dealers. He also added that the bank would have acted if it had discovered problems, but that it was not their job to go hunting for evidence that the markets were being rigged. Carney told the committee that when he was notified about the forex rigging allegations he retained lawyers to investigate the issue within 48 hours.
The foreign currency scandal is not the only time that the Bank of England has been embroiled in a scandal. Another recent issue was the Libor scandal, which involved the alleged fixing of interbank lending rates. Mark Carney compared the current forex issue with the Libor scandal and explained that he was taking it very seriously because it goes right to the heart of the question of market integrity. Carney has not been in his position as governor of the Bank of England for long, and he has faced a lot of challenges since his appointment.
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