City rocked by new scandal as probe gets underway into suspected attempt to rig price of government debt
By HUGO DUNCAN
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The City was rocked by yet another scandal yesterday after it emerged an investigation is underway into a suspected attempt to rig the price of government debt.
Regulators are looking into allegations that traders tried to get the Bank of England to pay over the odds for bonds it was buying through its mammoth quantitative easing programme.
Paul Fisher, executive director for markets at the central bank, told MPs that any attempt to manipulate the market ‘would be thoroughly reprehensible’ and insisted ‘appropriate sanctions’ should follow if anyone is found guilty.
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It is just the latest in a series of scandals to have engulfed the banking industry in recent years including the fixing of the crucial Libor interbank lending rate and the mis-selling of payment protection insurance.
Fisher said the case is now in the hands of the Financial Conduct Authority, the new watchdog set up to police UK banks and make sure customers are protected.
The Bank launched the first of three rounds of QE in March 2009 and cut interest rates to 0.5 per cent, in an attempt to save the economy in the wake of the financial crisis.
It has now pumped £375bn of emergency funds into the system through the purchase of government debt, known as bonds or gilts, and it is thought further action could follow under new governor Mark Carney.
Giving evidence to the Treasury Select Committee on QE yesterday, Fisher said the Bank was forced to abandon part of the programme in October 2011 after a surge in bond prices raised suspicions.
The Bank refused to buy the parcel of gilts in question and referred the matter to the City regulator. Fisher said the decision to stop the purchases had served as a ‘shot across the bows’ to markets that the Bank was not prepared to pay any price in its bond-buying programme.
Asked if he thought the market was being ‘deliberately manipulated’, he said: ‘There was that risk.’
The FCA declined to comment but it is understood an investigation is underway.
Andrea Leadsom, a Tory MP on the committee, said it would be ‘utterly outrageous’ if prices were being rigged by banks ‘when the whole point of QE was to try and undo the damage ultimately caused by the banks themselves’.
She said: ‘It would be quite astonishing if banks were seeking to manipulate the market that was designed to bail them out at a time of great crisis.’
Andrew Tyrie, chairman of the committee, questioned whether the case should have been handed to the Serious Fraud Office.
Read more: http://www.thisismoney.co.uk/money/markets/article-2365940/City-rocked-new-scandal-bond-rigging-probe.html#ixzz2ZNwoV2Q3
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Read more: http://www.thisismoney.co.uk/money/markets/article-2365940/City-rocked-new-scandal-bond-rigging-probe.html#ixzz2ZNwoV2Q3
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