Mark Carney, the governor of the Bank of England, was forced to admit on Tuesday that allegations of rigging in foreign exchange (forex) markets could be a bigger scandal than the manipulation of the London interbank offered rate (Libor).
During almost five hours in front of a British treasury select committee, Carney also unveiled plans for a new deputy governor to focus on banking and markets as part of an overhaul to bolster the bank's credibility.
He was speaking days after the bank suspended a member of staff in connection with its review of the £3-trillion-a-day foreign exchange market and began a formal inquiry into whether its staff knew about potential market rigging.
Carney faced renewed criticism from the committee's chairperson, Andrew Tyrie, that the bank's governance structure was “opaque, complex and Byzantine". Carney said a strategic review to be outlined next week would reinforce compliance, make staff more accountable and create the post of a fourth deputy governor.
The bank was "ruthlessly and relentlessly" investigating what had happened in foreign exchange markets. He told MPs: “This is as serious as Libor, if not more so, because this goes to the heart of integrity of markets. We cannot come out of this with a shadow of doubt about the integrity of the Bank of England."
The scandal escalated earlier this week after the Bloomberg news agency reported that a senior currency dealer at Lloyds Banking Group had tipped off a trader at the oil company BP about a £300-million foreign exchange deal. Bloomberg cited people with knowledge of the matter, saying the Lloyds dealer, Martin Chantree, alerted the other trader on January 31 last year that his desk had received instructions to swap more than £300-million for dollars and that they would continue selling regardless of price movements. Lloyds suspended Chantree last month.
Carney's repeated vows to reinforce integrity follow a warning from one of the treasury committee's MPs, Pat McFadden, that the bank faced “enormous" risks to its reputation from reports of wrongdoing in the forex market, where London accounts for 40% of the trade.
The governor's comments did little to allay Tyrie's concerns about the bank's ability to cope with a new crisis. “This is the first test for the Bank of England's new governance structures. Early signs are not encouraging," the MP said in a statement after the hearing.
He reiterated criticism of the slowness of the bank's oversight committee to take the lead on accusations of misconduct in the forex markets. An internal inquiry was launched in October but the investigation was moved up to the oversight committee last week.
The committee's Andrea Leadsom repeated several times a question to Paul Fisher, the bank's executive director for markets, about why the bank did not once deign to follow up the committee's queries in the wake of the Libor scandal about whether other prices may have been rigged.
Fisher said: “It isn't our job to go out hunting for rigging of markets."
Tyrie was visibly shocked when questions about monetary policy committee discussions led to the revelation that recordings of the meetings were destroyed once they had been turned into redacted minutes. He argued that recordings were of historical value, and was reluctant to accept Fisher's explanation that previous attempts to transcribe meetings had failed.
“Is that because you are all shouting and throwing things at one another? Most organisations manage to transcribe a record; even the House of Commons manages to do it on a good day." – © Guardian News and Media 2014