Béar growls but does not roar: the Bank of England and the remit problem

What does the Charles Béar QC opinion tell us about Lord Grabiner’s investigation for the Bank of England apart from the Bar’s increasing engagement in opinion giving as a form of public advocacy designed to heighten political pressure?

He seeks to answer two questions: was the review conducted adequately and were its terms of reference adequate?  The inherent professional tension in a lawyer answering the second question ‘independently’ for a client is apparent in his observation that :

“the general purpose of this kind of review must be to protect the reputation of the Bank and to demonstrate public accountability when serious issues are raised about its officials’ conduct.”

A number of questions can be raised in theory.  How does remit relate to independence, reputational and regulatory concerns?  What say should a lawyer have in their own terms of reference and how they might develop in the light of new facts?  And what obligations does a lawyer owe to the clients (if any) in how findings are presented even when ‘independent’?  Can  – as we have seen elsewhere –client interests shape the presentation of adverse or other findings? An implication from this Opinion might be that short term, client friendly judgments were made about terms of reference that have not (it transpires) been in the long term interest of the Bank where the view was:

 “We cannot come out of this at the back end with a shadow of doubt about the integrity of the Bank of England…”

Mr Béar makes the case that the remit of the Inquiry was inadequate in that it failed to take the approach, “recognised for cases of professional misconduct. No dishonesty or moral stigma is required but simply “serious professional misconduct”.”  His argument is a bit under articulated: “It is hard to understand why any different standard should apply to a central bank” but it is an argument of good sense (and of course some hindsight). Empirically though, I would like to know which other independent client-paid inquiries have applied this standard.  More often the remit is narrower: think of the Mirror Group and hacking, Harbottle and Lewis and hacking, Enron and financial engineering.  What we know about the Grabiner review does not raise the questions that some of these do.

The main bone of contention exercising Jesse Norman MP (who instructed Mr Béar) is whether Lord Grabiner’s findings of fact justified the conclusions that were drawn about them. Given the source of his instructions it is interesting that little if any blood is drawn here.  Adverse findings were not made in relation to a conversation  which, “Lord Grabiner describes this as ‘an event of importance’” whereby a somewhat confusing discussion about manipulation takes place.

“…The trader agreed “absolutely” when Mr Mallett described this as “market manipulation”.

“[yet when] Mr Mallett suggested that the banks were manipulating the market through the brokers said “It’s not that, they’re just trying to build a book”. The denial here is ambiguous and might relate either to manipulation via the brokers or manipulation altogether.

[As a result]

19.7 Lord Grabiner found that the trader was unclear and that neither Mr Mallett nor his deputy understood what they were being told. On that basis he declined to criticise them….

The basis is essentially there is ambiguity and Lord Grabiner gives Mallett the benefit of the doubt. In analyzing whether Grabiner was entitled to come to that conclusion and, “whether, in reaching that conclusion, Lord Grabiner left out of account any relevant information, or demonstrably misunderstood any part of the evidence.”:

23 These are very low tests and they have been satisfied. In order to discharge his terms of reference, it was sufficient for Lord Grabiner to analyse the conversation of October 2011 and decide whether he could be sure that Mr Mallett must have interpreted it as a communication of some market malpractice. Lord Grabiner subjected that conversation to detailed analysis and decided that, giving the Bank the benefit of the doubt, it had not been understood in that way. He asked himself the right question and answered it in accordance with evidence which had been presented to him and as to which there was no irrefutably contradictory material. It follows that tests (i) and (ii) above are met.

One can pause and observe the irony in saying scrutiny of Lord Grabiner’s decision is only subject to a light review test when the Bank’s professionalism should be subject to more searching scrutiny.  In particular, without criticising Lord Grabiner himself, it is worth observing here that this kind of balancing judgment about evidence is one which evidence from social psychology suggests professional agents instructed by a client find it difficult to do objectively.  The fact of instruction appears to influence judgment towards favouring one’s client subconsciously and that influence is an impact quite separate from financial incentives.  Of course there are countervailing pressures: Lord Grabiner would have been conscious of the need to do the job in as independent a frame of mind as possible for his own reputation.  Also, typically, senior lawyers claim enhanced levels of objectivity through years of legal experience and training.  The evidence on objectivity suggests that the more objective one thinks of oneself the less likely one is to be objective, but it is not a theory that has been tested on lawyers as senior as Lord Grabiner (though it has been tested on other lawyers with interesting results).

Overall then Mr Béar gives a lukewarm defence of Lord Grabiner’s judgment: it was a legally valid one.  He does not say the judgment was a good one, in his view, on the evidence.  I do not think one should read into that a view that Lord Grabiner’s judgment was flawed (though Béar seems to think it could have been better reasoned).  The narrow terms of reference, however:

… mean that (1) there has not been an examination of whether Mr Mallett’s failure to act on the conversation was a serious failure, and (2) there has not been an examination of the supervision of Mr Mallett by others in relation to his intelligence-gathering and escalation responsibilities.

…The broader questions do not concern the minute forensic dissection of a telephone conversation but the bigger picture. In this case the chief dealer of the foreign exchange desk of the central bank had a market participant report something to him. That report was introduced by a colleague who expressed serious concern. The participant used the language of manipulation and said banks wanted to “bully the fix”. Brokers were named. These expressions of concern did not come in a vacuum but in circumstances where the chief dealer had already concluded that behaviour was going on which would be difficult to justify to a regulator. The chief dealer did nothing other than ask the trader to keep in touch. He took no steps either to report the matter to anyone else or actively to follow up with the trader.

…The response to potential whistle-blowing is a crucial part of the overall credibility of the Bank. For reasons explained above, a central bank is liable to be seen as having a broad public responsibility, and a broad public reputation, even outside its specific areas of statutory responsibility from time to time. At present the review process has only dealt with part of the general questions raised. It has not addressed all the broader issues which the Select Committee and the Chairman of the Bank’s Court of Directors appeared to agree in June 2014 were part of what ought to be investigated. The broader question of serious professional misconduct which would be a standard part of an equivalent investigation in other spheres of life was not part of the reference.

Now as a statement of principle this has much to commend it.  Inquiries which seek to investigate wrongdoing must not be too circumscribed, particularly if there is a risk that a partial exoneration is presented as a more total exoneration.  Whether we think that is what happened here is likely to be influenced by our own biases: the evidence is a long way from conclusive on either side of the argument in my opinion.   Such reports risk a whitewash or exploding in the faces of the clients designed to be helped by them. Equally, a lawyer is in a tricky situation: the client has to pay for the investigation – they will not want to write a blank cheque.  The lawyer’s concern is not to be misused or complicit in misleading a regulator or third parties and to be truly, rather than notionally, independent.  I do not think whitewashing is the suggestion being made by this Opinion, but it does seem to be suggesting an error of judgment by the Bank of England in setting up an Inquiry with terms of reference which were too narrow.  Or maybe an error by the bank and the select committee, for they agreed the terms of reference.  I suspect we won’t get to hear how thoroughly canvassed the issues were in so doing.

One thought on “Béar growls but does not roar: the Bank of England and the remit problem

  1. The answer, I think, is to commit the commissioning organisation at the time the terms of reference are set to what it wants to say on publication. That preserves the right to set a narrow remit, whilst making it clear that the remit was narrow. Here, the disconnect is between what Lord G actually did and what the Bank said (or permitted people to think) he was doing.

    I don’t see any reason why this shouldn’t be made compulsory for any State funded body, or any body that has public functions to perform. Insofar as private organisations are concerned, the position should be that if you order your own enquiry, the professional rules of those who undertake it should compel them to publish their instructions (as experts have to do in appropriate legal cases). If you enquiry prevents an effective police enquiry, then that should be a disciplinary offence.

    The professions camp out on their independence and ability (you aren’t so sure it’s justified – I (usually) am). But it’s time to stand up and justify it.

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