Bank of England says audio feed misuse incident raises questions about scope of regulatory regime

Maria Nikolova

It is increasingly challenging to ensure a genuinely level playing field in markets where even small differences in the speed of access to market-sensitive information can be significant, BoE warns.

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The Bank of England (BoE) today published its response to the report on the misuse of the Bank of England’s press conferences audio feed.

In December 2019, the Court of Directors of the Bank commissioned a review by the Bank’s Internal Auditor and Independent Evaluation Office into misuse of the Bank’s Press Conferences audio feed. In late November 2019, the Bank established that an audio feed of certain of the Bank’s Press Conferences had been misused by a third party supplier in order to supply services to clients of a related company for a subscription fee and without the Bank’s permission.

The supplier’s use of the audio feed was wholly inappropriate and without authorisation, BoE says. The Bank took immediate action to ensure that the supplier played no further role in the Bank’s Press Conferences and referred the incident to the Financial Conduct Authority (FCA).

Whilst the Bank is confident that the contents of the Bank’s policy announcements (for example the Bank’s interest rate decisions) themselves were never compromised, the incident raised questions about the controls relating to the Bank’s Press Conferences. In December 2019, the Court of Directors of the Bank commissioned a review by the Bank’s Internal Auditor (IA) and Independent Evaluation Office (IEO) into: (i) the incident; and (ii) the Bank’s relevant internal processes (the “Review”).

The Review made a number of findings and recommendations as to how certain of the Bank’s relevant internal processes and procedures could be improved. The Bank says it fully accepts the Findings and the Recommendations.

In the past, the Bank has generally provided embargoed copies of key speeches and other publications to accredited journalists. This practice has served to ensure that journalists are given sufficient information – in a timely manner – to be able to scrutinise the Bank’s work. In turn, this supports a wider external understanding of the Bank’s work.

However, the practice also runs the risk that the contents of the speech or publication may be disseminated externally, pre-publication and/or to different participants at different times. Improved technology has increased the scale of the risk.

Having reassessed the balance of risks, the Bank has decided to end the practice of circulating embargoed materials to journalists in advance, unless this would hinder the Bank in achieving the full impact of its actions and/or its wider objectives in a crisis management context.

However, once the Bank 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.

More broadly, this incident raises questions about the current scope of the regulatory regime, BoE warns.

In 2014, the Bank (in conjunction with the FCA and HM Treasury) published the Fair and Effective Markets Review (“FEMR”). FEMR made 21 recommendations designed to ensure that Fixed Income Currency and Commodities markets are fair and effective, and enhance the measures put in place to tackle issues highlighted by prior serious misconduct cases, a number of which specifically concerned FX markets (including agreeing a single FX Global Code).

Although the FX Global Code is not binding, it has improved behaviour and can be considered when assessing senior managers’ behaviour under the Senior Managers Certification Regime, BoE argues. At an international level, the Bank reached out to colleagues across other central banks, and put them on notice of this risk of misuse of audio access.

BoE has also reminded market participants of their obligations under the FX Global Code and UK Money Markets Code (including at the official market-wide committees) and, in particular, the overarching obligation under the Codes to behave in an ethical manner to promote the fairness and integrity of the markets. One recommendation relating to the FX markets arising out of FEMR (recommendation 3b, to create a new statutory civil and criminal market abuse regime for spot foreign exchange, drawing on, among other things, work on a global code) was not enacted.

There is a question as to whether the decision not to take this recommendation forward merits reconsideration. HM Treasury may, therefore, want to consider whether an extension of the regime is desirable when an appropriate opportunity arises, BoE says.

“Finally, looking beyond this particular incident, it is increasingly challenging to ensure 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 notes.

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