LONDON The Bank of England announced an overhaul of the way it works with banks and financial markets on Tuesday as it faced growing criticism of its response to possible manipulation of foreign exchange rates.
BoE Governor Mark Carney answered questions from lawmakers for four-and-a-half-hours, a large part of which was devoted to the Bank's response to allegations that key currency benchmarks had been rigged.
Carney said a new deputy governor position, responsible for banking and markets, will be created as part of the shake-up.
"One of the first tasks of that individual is that he or she will conduct a root-and-branch review of how we conduct market intelligence," Carney said.
Details of the new structure will be announced on March 18.
As lawmakers seized on the case to revive their demands tougher oversight of the BoE, Carney stressed the seriousness of the foreign exchange case and compared it to the Libor interest rate-rigging scandal. This resulted in criminal charges against traders, the resignation of Barclays' chief executive and $6 billion in settlements paid by banks.
"This is as serious as Libor if not more so because this goes to the heart of integrity of markets, and we have to establish the integrity of markets," Carney told legislators.
The BoE suspended an employee last week as part of its internal investigation into whether staff turned a blind eye to signs of manipulation in the $5.3 trillion-a-day global market, for which London is the main hub.
The BoE and other leading authorities including Britain's Financial Conduct Authority (FCA) and the U.S. Department of Justice opened investigations into the allegations last October.
More than 20 currency traders at several of the world's biggest banks have been placed on leave, suspended or fired.
Minutes of BoE meetings with chief foreign exchange dealers released last week, in response to a Freedom of Information request by Reuters, showed concerns over possible manipulation were raised as early as 2006.
With lawmakers demanding details of how the Bank responded to the case, Carney said on Tuesday that the BoE's top management moved quickly as soon as it learned of the allegations and it was relentless in its investigations.
He said he and other top officials first learned of the allegations on October 16 last year and he told the Bank's governing board, its Court of Directors, on the same day.
"We convened governors, we decided to launch an investigation within 48 hours, we retained external counsel and they had begun a very thorough, systematic, relentless investigation," he said.
But the chairman of Tuesday's hearings said the BoE had to do more to show that its "Byzantine" oversight structures were up to the job.
"This is the first real test for the Bank of England's new governance structures. Early signs are not encouraging," lawmaker Andrew Tyrie said in a statement.
Since he took over the BoE in July last year, Carney has introduced several changes, including most notably the launch of its forward guidance policy that seeks to give a clear picture of when it might start to raise interest rates.
The case for structural change at the Bank has grown stronger since the foreign exchange allegations.
The BoE last year hired consultants McKinsey to advise on a strategic review to reflect the Bank's expanded powers to oversee the banking sector.
The Bank currently has three deputy governors, one for monetary policy, another for financial stability and a third in charge of the BoE's oversight of commercial banks.
Paul Fisher, another member of the Monetary Policy Committee who was previously BoE's head of foreign exchange, said he too only found out about the allegations last October.
He said the alleged collusion being investigated now was different to discussions around possible manipulation of the "fixings" by non-market makers such as hedge funds as far back as 2006.
Fisher hit back at criticism from lawmakers that the BoE did not respond more vigorously and played down suggestions it should investigate potential trading abuse more broadly, something which falls to the FCA, Britain's main market regulator.
"It's not our job to go hunting for the rigging of markets," he said when asked if the Bank had taken action in other markets in light of the concerns over possible FX manipulation.
FCA Chief Executive Martin Wheatley said the BoE was not being investigated as an institution but, in a letter to Tyrie made public on Tuesday, he said the FCA did have the authority to take action against BoE staff if needed.
(Additional reporting by UK bureau; Writing by William Schomberg and Jamie McGeever; Editing by Susan Fenton and Alison Williams)