Bank of England under fire in LIBOR scandal


MARIKO KODAKI, Nikkei staff writer


LONDON — A currency manipulation scandal that has already ensnared top banking institutions has reached the Bank of England, which may have learned of the affair as early as 2006.


Accusations arose last fall that traders at major banks colluded to rig the WM/Reuters benchmark foreign exchange rates. This scandal, COMING ON the heels of the London Interbank Offered Rate manipulation discovered in 2012, is further eroding trust in markets and the financial community.


Ten or so banks — including Barclays, HSBC, Citigroup, Deutsche Bank and BNP Paribas — have dismissed or replaced nearly 20 traders in connection with the issue, according to U.S. and European media.


Gov. Mark Carney testified before lawmakers Tuesday to defend the central bank. A group of individuals had trampled on what should have been a fair market, he said, arguing that clearer rules are needed to more accurately define market abuse.


“We’re going to create a new position, a deputy governor position responsible for markets and banking,” Carney said.


But suspicion has spread to the central bank itself. Minutes of its meetings with private banks in July 2006 indicate that the BOE may have known about the rate-fixing since then.


“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,” one passage reads.


A BOE official argued Tuesday that this does not necessarily mean the bank thought of it as currency-rigging. But the BOE has suspended one employee — and if central bank employees were aware of the issue, then the roots of the problem become far deeper.


Traders at banks have also been accused of sharing information on transactions by such major clients as hedge funds. At least 12 authorities in Europe, the U.S. and Asia are investigating these allegations, which some say may have a greater impact than the Libor affair.


Uncovering the truth will be no easy task. The FOREX MARKET handles an average of $5.3 trillion in trades a day. The number of participants and the volume of trading records are far larger than in the Libor scandal, which involved only a limited number of banks.


     Nothing has been confirmed so far, and no parties have been identified in connection with the questionable trades.


     It will also likely be difficult to determine the legality of the issue. Some point out that guiding market rates with buy or sell orders is within the bounds of normal trading.


Sharing transaction information was not really seen as an issue until now for currency transactions, which are not subject to insider trading rules, a financial industry player says.


But authorities are digging deeper because opaque practices by financial professionals in the wake of the Libor scandal may breed distrust in the market. If manipulation distorted the FOREX market, many businesses and investors may see their profits erode.


Barclays, UBS and other banks involved in the Libor scandal have paid more than $5 billion in fines. Penalties are growing larger as public opinion turns against the financial industry, and banks may be forced to spend heavily to reinforce their compliance regimes as well.


Many expect it to take more than two years for authorities to shed light on the whole scheme, and a protracted investigation could undercut the confidence of financial markets.

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