The Bank of England (BoE) has been discussing the practices of traders with key foreign-exchange benchmarks with senior FX dealers a year-and-half prior to when regulators formally opened a probe in rate manipulation. The central bank released records from a meeting in April 2012 that showed dealer discussions on practices during times when benchmark rates were set, primarily the WM/Reuters rates.
These practices including instant messaging through software platforms, like Bloomberg, that discussed open positions in order to reduce risk minutes prior to the reset of rates. Investigators are still deciding whether or not these instant messages between traders amount to collusion.
These newly released documents are causing questions on how much the BoE knew, exactly, about ongoing abuse and manipulation of the system prior to regulators knowledge. “It’s highly concerning that this issue wasn’t escalated,” said Austin Mitchell, a member of Parliament from the Labour Party. Why, yes it is.
“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,” according to the summary of the April 23, 2012 meeting of the chief dealers’ subgroup within the BoE’s foreign exchange joint standing committee. This committee is comprised of BoE officials and 11 spot traders from the world’s largest banks.
Several firms that have been caught in this manipulation scandal have put some traders, including chief FX dealers, on leave or have fired them. Citigroup’s head of G10 spot FX Rohan Ramchandani was on several of the instant messages used in the investigation and has been let go. UBS AG has suspended their co-chief dealer, and JP Morgan’s London based dealer, Richard Usher, is on leave.
JP Morgan has been spit-roasted over the last year over countless manipulation and abuse allegations. They have also been fined for being involved with the infamous Bernie Madoff. The firm didn’t get heat for being involved with Madoff, but they cut ties with Madoff on criminal suspicions and did not inform regulators.
The LIBOR scandal put pressure on the BoE because many criticized the central bank for not acting on the manipulation. The BoE and Federal Reserve have discussed in the past on the vulnerability in these rates and how they are set. The LIBOR rate is set in “good-faith” by the institution. Nothing was done because it fell out of their jurisdiction.
The question is, If they knew about it several years ago – the BoE and Federal Reserve – why was it not told to those that could actually do something about it?