Outgoing Bank of England head to face questions over audio leak

Bank of England governor Mark Carney faces being hauled before parliament to answer questions about a embarrassing security breach that allowed hedge funds early access to an audio feed of market-moving press conferences.

Mel Stride, the Conservative MP who is chair-elect of the Treasury select committee, said he would call in Carney and his incoming successor Andrew Bailey to explain the breach, which could have allowed hedge funds to make money by buying or selling sterling depending on Carney’s sentiments on the economy.

The misuse of the feed, which was unknown to the Bank until it was alerted by the press in December, could have given hedge funds a five seconds’ edge over rivals in accessing market-sensitive information – a crucial and potentially lucrative advantage in an era of high-speed algorithmic trading.

For example in February 2019, the pound slumped to a two-week low of $1.2854 and the Bank issued its worst growth forecast in a decade. But then it quickly rallied, spiking to $1.2997 after Carney said in a press conference that a reduction in Brexit uncertainty would help the economy.

Stride said: “This is a worrying story on the integrity of the Bank’s information security. When the new Treasury committee is formed, I’d expect us to see the outgoing Mark Carney and incoming Andrew Bailey pretty swiftly. I’ve no doubt that we’ll have some searching questions for them to answer in order to get to the bottom of this.”

The security breach followed a restructuring of the Bank’s security division that prompted a wave of senior departures, first revealed by the Observer. Rob Elsey, an executive director who serves as chief information officer, will become the latest top-ranking security official to leave since the restructuring. He will leave the Bank by June to take up a new role, the Guardian can reveal.

A Bank spokesman said Elsey’s departure was not linked to the security breach under investigation.

Elsey reports to Joanna Place, the Bank’s chief operating officer with final responsibility for security, who has faced calls to resign because of the breach. The chief operating officer reports directly to the governor.

Elsey said: “After a hugely enjoyable and successful five years at the Bank I have decided to take up an exciting new role that offers the opportunity to relocate. This move has been in the works for a number of months, and while it is never easy to leave, the opportunity is one I couldn’t say no to. I will be serving my full notice period, leaving the Bank on 1 June.”

The security lapse has cast a shadow over the final months of Carney’s time as governor, and may cause problems for incoming governor Bailey, who takes over at Threadneedle Street on 16 March. Bailey has promised to recuse himself from all discussions on the breach to avoid a potential conflict of interest while his previous employer, the Financial Conduct Authority, investigates.

David Blanchflower, a former member of the Bank’s influential monetary policy committee, reiterated his call for Place to resign. “It looks like the buck doesn’t stop at the top,” he said. “This needs to be fully investigated by the Treasury select committee.”

The Guardian understands that the Bank commissioned internal and external assessments of the restructuring plans, some of which warned against the approach. Sam Woods, one of the Bank’s deputy governors, challenged the decision in November 2019 during a meeting of the executive risk committee. The Bank said this was a normal part of his duties as chair of the committee, and that he supported the decision.

A Bank spokesman said: “In order to strengthen information security, the Bank overhauled its approach in 2019. The new design drew on third-party expertise and extensive consideration of different models in the private and public sector. The resulting structure clarified first-line accountability and consolidated it within the Bank’s technology directorate. It also placed second-line challenge in the new, independent risk directorate.

“The restructure has the full support of the executive risk committee, chaired by Sam Woods, and the Bank’s audit and risk committee.”

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