The Governor of the Bank of England ("BoE"), Mark Carney, recently rejected criticism by the Treasury Select Committee last week regarding the adequacy of the BoE's investigation into the Forex
The Governor of the Bank of England ("BoE"), Mark Carney, recently rejected criticism by the Treasury Select Committee last week regarding the adequacy of the BoE's investigation into the Forex rigging scandal. It had been argued by the Treasury Select Committee that the BoE's inquiry was given a deliberately narrow scope which served to insulate the BoE from institutional criticism. The Treasury Select Committee has since instructed Charles Béar QC to comment on the BoE's inquiry and his opinion, discussed below, is, it is fair to say, critical. The matter and, particularly, Mr Béar's opinion, invoke an interesting assessment of the adequacy of the terms of reference of an internally commissioned inquiry and, in somewhat ancillary comments, the respective scrutiny that the BoE's officials received compared to those in other regulated professions.
Background
Whilst it is not the purpose of this article to analyse the regulatory or disciplinary context of this matter, it is necessary to briefly outline the history of it. Allegations of the rigging of $5.3tn-per-day foreign exchange ("Forex") markets were reported in 2013. It was alleged that rival Forex traders had shared information - particularly across internet chatrooms - which may have illicitly manipulated Forex prices and, in turn, the profits banks could attain from Forex trading. This was thought to have occurred for at least a decade. In November 2014, five banks were fined a collective £1.1bn by the Financial Conduct Authority (which was supplemented by further fines on the banks by the US Commodity Futures Trading Commission and the Office of the Comptroller of the Currency).
The BoE does not regulate the Forex market (nor is it subject to direct or primary regulation) but is a participant in it, on behalf of itself, its clients and governmental departments. It is also engaged in market intelligence with other banks, which informs its wider policies and functions. Market intelligence was, apparently, assimilated during the period in question through the "chief dealers' sub group" ("CDSG") which included several banks' traders and was chaired by the BoE's chief dealer. It was during meetings of the CDSG from 2006 that concerns of Forex rigging, such as those described above and which led to the FCA's disciplinary action, were discussed.
Investigation by the BoE Oversight Committee and the Treasury Select Committee
In March 2014, the BoE's supervisory "Oversight Committee" received information which suggested that the BoE's chief dealer "might have been aware of improper activity by banks participating in the forex market"[1] from "at least" 2011[2], after what would effectively be deemed whistleblowing of such practices. He had not, it appeared, reported these appropriately within the BoE or to the Financial Services Authority (since replaced by the FCA). The BoE subsequently commissioned an external review by Lord Grabiner QC, whose findings were published in November 2014[3]. Lord Grabiner's conclusions, again, go beyond the scope of the subject of this article. He did, however, consider that the BoE's chief dealer, who had since left the BoE, should have escalated his concerns and that it was an "error of judgment"[4] for him not to do so. No further criticism was attributed to other BoE officials and Lord Grabiner's report was reported as effectively "clearing" the BoE of wrongdoing on a systemic level, save the actions of its chief dealer.
The Treasury Select Committee was critical of aspects of Lord Grabiner's report, not only in respect of its interpretation of particular evidence and practices, but also, more fundamentally, in respect of the terms of reference the BoE's Oversight Committee established for the investigation. Jesse Norman MP, a member of the Treasury Select Committee, instructed Charles Béar QC partly to analyse whether the BoE could reasonably be satisfied that the terms of reference of Lord Grabiner's review were adequate.
Opinion of Charles Béar QC
Mr Béar's opinion was published on 2 March 2015[5].
In Mr Béar's opinion, the terms of reference of Lord Grabiner's report – as established by the BoE - were "very low tests"[6] but had been met by Lord Grabiner "ask[ing] himself the right question".
Mr Béar was of the opinion, however, that the narrow terms of reference of Lord Grabiner's review meant that the BoE's officials "at various levels" had not been "subjected to scrutiny in the way in which professional people are normally assessed when a serious problem comes to light"[7]. The report had not, and had not been asked, to consider the broader scope of professional misconduct and whether the chief dealer, or other BoE officials, might be guilty of such conduct. Citing cases involving the General Medical Council and the General Dental Council[8], Mr Béar drew a specific parallel with professional regulation and disciplinary provisions which "expose and sanction serious failings" in the name of the public interest, even those falling short of bad faith. In a statement which arguably invokes wider questions, Mr Béar stated that "[i]t is hard to understand why any different standard should apply to a central bank".
Elucidating on his own terms of reference, Mr Béar considered that the unifying, underlying question to his inquiry was whether the BoE could,
"be satisfied that any failings have been brought to light so that the public can judge whether the institution's response to those failings is satisfactory. Unless there is a transparent investigation of the relevant problems, the public will not be able to have informed confidence in the Bank's future conduct".
In Mr Béar's view, the BoE had not challenge itself to consider: the circumstances in which a BoE official should be under duty to take further action in response to whistleblowing, what they should do, and what further action would have been appropriate for senior BoE officials to have taken to ensure that the duty "assuming there is one" is "properly understood and enforced"[9]. The BoE's response to whistleblowing is seen as a "crucial part of the overall credibility of the [BoE]"[10] and of its public responsibilities.
Partly because of the absence of consideration of whether professional misconduct had occurred, and what duties BoE staff were or should be under to report suspicions of market malpractice, Mr Béar implied that the BoE could not be reasonably satisfied that "visible thoroughness and public reassurance" had occurred.
[1] Charles Béar QC's opinion, paragraph 13
[2] Charles Béar QC's opinion, paragraph 18.9
[3] Lord Grabiner's Report (and the BoE's initial press release on its publication) can be found here. The terms of reference are listed on page 42.
[4] Lord Grabiner's Report, paragraph 77 (a)
[5] Mr Béar QC's opinion can be found here.
[6] Charles Béar QC's opinion, paragraph 23
[7] Charles Béar QC's opinion, paragraph 33
[8] Charles Béar QC's, paragraph 7
[9] Charles Béar QC's opinion, paragraph 35
[10] Charles Béar QC's opinion, paragraph 35
Background
Whilst it is not the purpose of this article to analyse the regulatory or disciplinary context of this matter, it is necessary to briefly outline the history of it. Allegations of the rigging of $5.3tn-per-day foreign exchange ("Forex") markets were reported in 2013. It was alleged that rival Forex traders had shared information - particularly across internet chatrooms - which may have illicitly manipulated Forex prices and, in turn, the profits banks could attain from Forex trading. This was thought to have occurred for at least a decade. In November 2014, five banks were fined a collective £1.1bn by the Financial Conduct Authority (which was supplemented by further fines on the banks by the US Commodity Futures Trading Commission and the Office of the Comptroller of the Currency).
The BoE does not regulate the Forex market (nor is it subject to direct or primary regulation) but is a participant in it, on behalf of itself, its clients and governmental departments. It is also engaged in market intelligence with other banks, which informs its wider policies and functions. Market intelligence was, apparently, assimilated during the period in question through the "chief dealers' sub group" ("CDSG") which included several banks' traders and was chaired by the BoE's chief dealer. It was during meetings of the CDSG from 2006 that concerns of Forex rigging, such as those described above and which led to the FCA's disciplinary action, were discussed.
Investigation by the BoE Oversight Committee and the Treasury Select Committee
In March 2014, the BoE's supervisory "Oversight Committee" received information which suggested that the BoE's chief dealer "might have been aware of improper activity by banks participating in the forex market"[1] from "at least" 2011[2], after what would effectively be deemed whistleblowing of such practices. He had not, it appeared, reported these appropriately within the BoE or to the Financial Services Authority (since replaced by the FCA). The BoE subsequently commissioned an external review by Lord Grabiner QC, whose findings were published in November 2014[3]. Lord Grabiner's conclusions, again, go beyond the scope of the subject of this article. He did, however, consider that the BoE's chief dealer, who had since left the BoE, should have escalated his concerns and that it was an "error of judgment"[4] for him not to do so. No further criticism was attributed to other BoE officials and Lord Grabiner's report was reported as effectively "clearing" the BoE of wrongdoing on a systemic level, save the actions of its chief dealer.
The Treasury Select Committee was critical of aspects of Lord Grabiner's report, not only in respect of its interpretation of particular evidence and practices, but also, more fundamentally, in respect of the terms of reference the BoE's Oversight Committee established for the investigation. Jesse Norman MP, a member of the Treasury Select Committee, instructed Charles Béar QC partly to analyse whether the BoE could reasonably be satisfied that the terms of reference of Lord Grabiner's review were adequate.
Opinion of Charles Béar QC
Mr Béar's opinion was published on 2 March 2015[5].
In Mr Béar's opinion, the terms of reference of Lord Grabiner's report – as established by the BoE - were "very low tests"[6] but had been met by Lord Grabiner "ask[ing] himself the right question".
Mr Béar was of the opinion, however, that the narrow terms of reference of Lord Grabiner's review meant that the BoE's officials "at various levels" had not been "subjected to scrutiny in the way in which professional people are normally assessed when a serious problem comes to light"[7]. The report had not, and had not been asked, to consider the broader scope of professional misconduct and whether the chief dealer, or other BoE officials, might be guilty of such conduct. Citing cases involving the General Medical Council and the General Dental Council[8], Mr Béar drew a specific parallel with professional regulation and disciplinary provisions which "expose and sanction serious failings" in the name of the public interest, even those falling short of bad faith. In a statement which arguably invokes wider questions, Mr Béar stated that "[i]t is hard to understand why any different standard should apply to a central bank".
Elucidating on his own terms of reference, Mr Béar considered that the unifying, underlying question to his inquiry was whether the BoE could,
"be satisfied that any failings have been brought to light so that the public can judge whether the institution's response to those failings is satisfactory. Unless there is a transparent investigation of the relevant problems, the public will not be able to have informed confidence in the Bank's future conduct".
In Mr Béar's view, the BoE had not challenge itself to consider: the circumstances in which a BoE official should be under duty to take further action in response to whistleblowing, what they should do, and what further action would have been appropriate for senior BoE officials to have taken to ensure that the duty "assuming there is one" is "properly understood and enforced"[9]. The BoE's response to whistleblowing is seen as a "crucial part of the overall credibility of the [BoE]"[10] and of its public responsibilities.
Partly because of the absence of consideration of whether professional misconduct had occurred, and what duties BoE staff were or should be under to report suspicions of market malpractice, Mr Béar implied that the BoE could not be reasonably satisfied that "visible thoroughness and public reassurance" had occurred.
[1] Charles Béar QC's opinion, paragraph 13
[2] Charles Béar QC's opinion, paragraph 18.9
[3] Lord Grabiner's Report (and the BoE's initial press release on its publication) can be found here. The terms of reference are listed on page 42.
[4] Lord Grabiner's Report, paragraph 77 (a)
[5] Mr Béar QC's opinion can be found here.
[6] Charles Béar QC's opinion, paragraph 23
[7] Charles Béar QC's opinion, paragraph 33
[8] Charles Béar QC's, paragraph 7
[9] Charles Béar QC's opinion, paragraph 35
[10] Charles Béar QC's opinion, paragraph 35