Serious Fraud Office closes Bank of England investigation

The Serious Fraud Office has closed its criminal investigation into the conduct of the Bank of England at the onset of the financial crisis when it was holding money market auctions for UK lenders.

The agency had been looking into whether banks and building societies were told by the BoE to bid for liquidity funding in late 2007 and early 2008 at a particular rate to minimise questions about the health of their ­balance sheets.

The BoE reported itself to the SFO in November 2014 after an internal inquiry led by Lord Grabiner QC, the £3,000-an-hour silk who had previously headed the central bank’s independent inquiry into whether it played a role in the foreign exchange-rigging scandal. The findings of the Grabiner report were never made public.

The SFO inquiry into whether officials knew about or facilitated the rigging of the liquidity auctions amounted to an unprecedented criminal investigation for the BoE.

But on Friday the agency said it was closing the case, saying: “After a thorough investigation the SFO has concluded that there is no evidence of criminality in relation to this matter.”

The BoE said it had “co-operated fully with the SFO throughout its investigation” and was “proud of the dedication and professionalism displayed by its staff during the financial crisis”.

It acknowledged that the 2007-08 crisis had “exposed shortcomings in the bank’s frameworks for providing liquidity insurance, operating procedures and governance arrangements” as these had not been “designed to meet the extraordinary needs of markets and intermediaries at that time”.

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After the SFO launched its official criminal probe in March 2015, as first reported by the Financial Times, the BoE then instigated a wide-ranging review of its auctions during the crisis.

The bank said on Friday that review had prompted it to refer to the SFO one further matter over special treatment it gave at the height of the crisis to one big financial institution it described as having been in “grave financial difficulty and in receipt of emergency liquidity assistance”.

The central bank said that between October 2008 and January 2009, when the UK government had to bail out Royal Bank of Scotland and orchestrate a takeover of HBOS by Lloyds, that it had allowed this institution, which it did not name, a concession during the auctions.

It was permitted to “commit a greater proportion of a class of collateral than envisaged under the standard collateral concentration rules then in force. This enabled the institution to place bids in the relevant auctions for a greater level of funds”.

The SFO’s decision to drop its BoE probe included this later referral, according to the bank.

In all, the BoE has incurred costs of £4.7m related to the SFO’s investigation, it said on Friday. That included £530,000 paid for legal advice for those questioned.

They included Sir Paul Tucker, the former BoE deputy governor who in 2008 was head of markets. He was questioned voluntarily as a witness, the FT has previously reported.

Despite the dropping of the BoE case, the SFO is continuing to investigate suspected wrongdoing dating back to the financial crisis. This week it charged Barclays, John Varley, its former chief executive, and three other ex-senior executives with fraud related to the emergency cash injections that saved the bank from a government bailout.

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This marks the first time the head of a global bank has faced criminal charges for activities during that period, when big lenders across the UK, US and Europe were being rescued by taxpayers.