In early 2014, the Bank of England became aware that Bank officials might have been involved in the attempted manipulation of the foreign exchange markets, and they might have facilitated collusion between market participants.

On 11 March 2014, Mark Carney, the Governor of the Bank of England, told the UK’s Treasury Select Committee (TSC) that the Bank was “acutely aware of [its] responsibility to complete a thorough, comprehensive investigation of all aspects related to this issue. You rightly said this is incredibly important. It is incredibly important for the foreign exchange market and it is fundamentally important to the integrity of the Bank of England. We cannot come out of this at the back end with a shadow of doubt about the integrity of the Bank of England“.

Unfortunately, the Bank has so far failed to achieve this outcome. Our earlier blog explains why.

The Bank’s woes deepened yesterday when the UK’s Treasury Select Committee published a (so-called) “wash-up” document entitled “Matters arising from Lord Grabiner’s investigations for the Bank of England”. In particular, the TSC explains that “There is merit in the [TSC] in the next Parliament, drawing upon the evidence already collected [and] examining further a number of issues arising from Lord Grabiner’s investigations for the Bank of England into the foreign exchange market … Among the questions that may need to be examined, or examined further are:  

  • Were the Bank’s processes for setting up the inquiries appropriate? What can be improved …?
  • Did the Bank set Lord Grabiner appropriate terms of reference?
  • Was Lord Grabiner wholly independent, able to investigate whatever he saw fit and free to make any recommendations or comments arising from his investigation that he saw fit…?
  • What view should be reached about the quality and completeness of Lord Grabiner’s report and conclusions?” and
  • Have the Bank’s response to Lord Grabiner’s report and its proposals for reform, including lines of responsibility, fully addressed the issues raised, including detection of improper behaviour?

These questions arise because there seem to be good reasons for supposing that the Bank of England may have restricted the scope of Lord Grabiner’s inquiry to mitigate the risk that:

  • He would criticise the Bank’s internal systems and controls; and/or
  • (If Bank officials were involved in the attempted manipulation of the markets and they did facilitate collusion between market participants), responsibility for these flaws and failures would rest with senior officials who are still in post.

It is far from clear whether there is anything in any of these things. What is clear, however, is that unless and until the TSC’s wash-up questions are examined in detail, by the Bank and Lord Grabiner, or by the TSC, we have “come out of this at the back end with a shadow of doubt about the integrity of the Bank of England“, and that is something, up with which we cannot put.

Whether the new TSC will investigate these issues will, of course, depend on the make up of the new TSC, and its priorities, and that might, unfortunately, mean that is the end of that. We’ll see.

(The existing TSC’s Bank of England Foreign Exchange Market Investigation webpage is available here. It includes some or all of the evidence collected by the TSC to date on these issues.)