The SFO is investigating the Bank of England for its conduct of liquidity auctions during the financial crisis in 2007 and 2008.
This is the first time the Serious Fraud Office (SFO) has investigated the Bank of England. The investigation started in November 2014 following a self-report by the Bank. Lord Grabiner was instructed by the Bank to look into its involvement in the foreign exchange scandal. The Bank seemingly self-reported following conclusions reached by Lord Grabiner.
What’s the Investigation About?
The investigation is likely to focus on the Bank’s role in providing “liquidity insurance” to the major commercial banks. All banks need to have liquidity, or access to cash, and that need is greatest if there is a “run on the bank” as happened with Northern Rock.
As is now known, Northern Rock’s run precipitated a liquidity crisis in the banking sector generally and the Bank of England was asked for help in providing extra cash. That cash was obtained from the Bank of England through its regular auction process, and it is that auction process that appears to be under scrutiny.
How Will the Investigation Progress?
It is likely that any relevant material will have been provided to the SFO by the Bank of England as part of its self-report but if not, the SFO has compulsory powers it can use to require the Bank to provide additional information.
Once it has considered the documentation, the SFO will review whether it needs to interview relevant individuals and if so whether to speak to those concerned as potential witnesses or suspects.
If the SFO inquiry indicates evidence of wrong doing, any decision to charge will have to be taken by an independent lawyer in accordance with the test set out in the Code for Crown Prosecutors. This requires the reviewing lawyer to be satisfied that there is sufficient evidence to provide a realistic chance of conviction and, if so, that any prosecution would be in the public interest.
What Might Happen?
The Bank of England may have referred the matter to the Serious Fraud Office to ensure that it was subject to independent scrutiny so that the public can be assured that the SFO, as the UK’s principal counter fraud agency, is satisfied that there was no business crime rather than the bank making that statement itself.
As such no wrong-doing may be found but the Bank of England will be able to show that it has acted prudently and with transparency.
If business crime is found, individuals could be prosecuted and, if convicted, face imprisonment and/or be fined. If those individuals are at a sufficiently high level to constitute the controlling mind of the bank then potentially the Bank of England could also be prosecuted and be at risk of a limited fine.
As with any SFO investigation it is likely to be some months before any decision is made.
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