BoE Questions Decision to Drop Spot FX Market Abuse Regime

As part of its response to the findings of an internal investigation conducted after it was revealed that audio recordings of its press conferences were being sold to market participants, the Bank of England has flagged revisiting a previously ignored recommendation of the UK’s Fair and Effective Markets Review (FEMR) to create a new statutory civil and criminal market abuse regime for spot foreign exchange.

In general observations regarding the broader impact of the audio feed issue, the Bank states, “There is a question as to whether the decision not to take this [the market abuse regime for spot FX markets] recommendation forward merits reconsideration. HM Treasury may, therefore, want to consider whether an extension of the regime is desirable when an appropriate opportunity arises.”

In November 2019, concerns were raised with the Bank that an audio feed of certain of its press conferences was being made available to subscribers of Statisma News, an affiliate of the company – Encoded Media – which the Bank employed to video stream the press conferences to YouTube. The Old Lady also referred the issue to the UK regulator, the Financial Conduct Authority (FCA) which, it has been announced, has found no misconduct relating to the issue.

It was found that Statisma was promoting quicker access to the content of the press conferences via an audio feed which was, naturally, quicker than a video feed. In turn, this was seen as disadvantaging certain market participants and thereby creating unfair and unbalanced market conditions. In its statement on the report’s findings, the Bank notes that “Up to now, the Bank has not routinely monitored social media or the broader web for evidence of companies that advertise inappropriate access to the Bank’s publications and press conferences.”

The Bank does accept its shortcomings in the issue, stating, “Our Review has indicated that there were occasions where, with the benefit of hindsight, this misuse by a third party supplier of the Bank’s audio feed could have been identified sooner by the Bank.”

It adds, “In late 2018, an external party made a specific allegation to the Bank with regards to Encoded Media’s use of its feed. This was not fully investigated because it was not considered possible in the Bank’s Press Conference environment. This was based on the Bank’s understanding of the facts, but it was incorrect.”

The Bank also notes that the European Central Bank announced in September 2019 that it was introducing its own low latency feed of its key Press Conferences, a move which was reported as having been triggered by concerns about fast access by some companies.

The report into the incident recommends that the Bank should review the way technology is used to support media interactions – something the central bank says it has already completed. The report also recommends the Bank risk assess how its market sensitive information is disseminated and as a result it says it will stop providing journalists with embargoed copies of such material. That said, it adds that once it is again able to host physical press conferences on its premises, the Bank’s most sensitive releases – the Monetary Policy Report and Financial Stability Report – will continue to be disseminated in advance to accredited reporters under the recently augmented, extensive “lock-in” security arrangements for such press briefings, which were in place for the publication of the January 2020 Monetary Policy Report.

The report also recommends the Bank implement effective oversight of its “niche” suppliers and further training for senior managers in the early identification of such risks. It also recommends the bank adopt consistent processes to identify and respond to firms that advertise “inappropriate” access to Bank information.

Whilst highlighting how it reminds market participants of their obligations under the FX Global Code and UK Money Markets Code, the Bank does acknowledge the “increasingly challenging” task of ensuring a genuinely level playing field in markets where even small differences in the speed of access to market-sensitive information can be significant. “The Bank will continue to discuss this issue with market participants and to share best practice in light of the Bank’s experience with counterparts internationally,” it concludes.

Colin Lambert

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