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Lord Grabiner Defends BoE Evidence in FX Enquiry

The UK’s Treasury Committee has released further evidence provided by Lord Grabiner following his defence last month of the former Bank of England chief dealer Martin Mallett, provided as part of the enquiry into whether the central bank had ignored early warnings of FX market malpractice.

Grabiner drew criticism from MPs Mark Garnier and Jesse Norman regarding the lack of detail in his evidence and his claims that, while Mallett had made an error in judgement, he had not acted in "bad faith".

In a letter to Andrew Tyrie MP, chairman of the Treasury Committee, Grabiner provides a transcript extract from the telephone conversation that took place between Mallett and a trader in 2011, in which the trader allegedly warns about manipulative practices taking place around the FX Fix.

“As I sought to explain to the Committee… I believe the exchanges in that conversation reveal a misunderstanding on the part of Mr Mallett as to precisely what it was the trader was saying to him,” says Grabiner. “Even now, it is unclear whether the trader was even complaining about conduct which was unlawful or improper, or was only complaining about heavy speculative trading around the Fix.”

He adds that given the circumstances, he does not consider that Mallett should be criticised for not having escalated the conversation.

In particular, he points to Mallett’s questioning of the trader as to whether the banks are “try[ing] to manipulate the market through the brokers”.

According to Grabiner’s interpretation, the trader “promptly rejected this suggestion” adding: “It’s not that, they’re just trying to build a book…”

Grabiner’s initial evidence was provided following his publication of a report in November into allegations that the BoE had turned a "blind eye" to manipulation claims in the FX market.

Mallett was dismissed from his role with the central bank, although the BoE claims the move was not related to Grabiner’s report (Squawkbox, 12 November 2014).

Grabiner was also criticised by MPs over the lack of detail in his evidence and the £401,000 charge for his work. In addition, law firm Travers Smith received £2.2 million for its work regarding the probe.

Tyrie adds that Grabiner’s interpretation of the telephone conversation is a crucial part of his report in which he had to “reach a judgement” as to whether or not illegal market activity was discussed, whether the discussion related to the actions of brokers or banks, and whether Mallett understood what he was being told.

“The oral evidence provided to the Committee by Lord Grabiner on these important points was unclear,” he says. “The letter published today provides some further information on how Lord Grabiner reached his conclusions. The Committee will consider it, and his report, in due course.”

In related news, head of the UK’s Financial Conduct Authority (FCA) Martin Wheatley is calling for trading practices in the FX markets to change and says he expects the industry to come up with a sensible set of reforms.

Speaking at a conference run by the Association for Financial Markets in Europe (AFME), he warned that, while it is not easy to create solutions for a global market like FX, the “status quo” is not a viable option either.  Twitter: @ntavendale

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