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BoE discussed FX fixing process with chief dealers -document

Source: Reuters - Thu, 16 Jan 2014 10:36 GMT
Author: Reuters
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By Jamie McGeever

LONDON Jan 15 (Reuters) - Bank of England representatives discussed the process of setting foreign exchange benchmarks with senior currency dealers at major investment banks in April 2012, more than a year before regulators launched official probes into alleged rate manipulation, according to a Freedom of Information Request made by Reuters.

The investigations into alleged currency market rigging intensified on Wednesday as U.S. regulators descended on Citigroup's London offices and Deutsche Bank suspended several traders in New York.

A Bank of England (BoE) response to the Freedom of Information Request released on Wednesday said: "There was a brief discussion on extra levels of compliance that many bank trading desks were subject to when managing client risks around the main set piece benchmark fixings".

This discussion took place at a meeting on April 23, 2012 of the "chief dealers subgroup" of the London Foreign Exchange Joint Standing Committee, which is run under the auspices of the BoE and involves representatives from the major players in the foreign exchange market.

This was 18 months before Britain's top financial watchdog, the Financial Conduct Authority (FCA), confirmed it was investigating alleged manipulation and the U.S. Department of Justice said it was launching criminal investigations.

Regulators around the world are probing allegations of manipulation in the $5.3 trillion-a-day market, by far the world's biggest and largely unregulated.

The probe into the exchange of positioning and order flow information between senior traders at major banks and allegations of attempted manipulation has resulted in several traders being put on leave, suspended or fired.

Sources told Reuters that traders raised questions about the use of chatrooms by dealers at the meeting in April 2012 because they were concerned about the growing regulatory storm surrounding the London Interbank Offered Rate, known as "Libor", where traders were accused of manipulating global benchmark interest rates.

The Libor scandal has already cost banks $6.0 billion in settlements and seen the first suspects brought to court.

The fact that issues which 18 months later were to become the subject of global investigation were discussed with the BoE raises questions about the nature of the relationship between the BoE and the market, what the central bank understood then to be common practice around the fixings and what concerns about compliance it may have raised with market participants in 2012.

"It's extraordinary that the Bank (of England) could have known about this for so long," said a source with knowledge of the meeting.

Britain's top regulator, the Financial Conduct Authority, was also aware of the issues in 2012, another source said.

The Bank of England and FCA declined to comment on Wednesday, although the BoE previously said in a statement that the record of the April meeting "does not show any discussion of actual or alleged manipulation of FX benchmarks".

The BoE added in the same statement: "The Bank takes the recent allegations of manipulation extremely seriously and, through its market knowledge and intelligence gathering, is supporting the FCA in its investigation, and will take all necessary steps to address this important issue."

The key foreign exchange rates, WM/Reuters, 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.

The WM/Reuters rate set at 4 p.m. London time is considered the benchmark by many companies and investors because of the large amount of foreign exchange trading which is done in London.

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