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Foreign exchange scandal widens with inquiry into official 'collusion'

Bank launches investigation, and blames Britannia chiefs for debacle at the Co-op Bank

The Bank of England has launched a "full legal review" into claims that its officials gave tacit approval to collusion among foreign-exchange traders, now part of a major international investigation.

Andrew Bailey, a deputy governor, told MPs on the Treasury Select Committee that the review was being carried out by in-house lawyers "supported by outside counsel".

He said: "The governors have taken these claims extremely seriously.

"We have released a minute (of the meeting) but obviously there are now allegations of different versions."

He said that the governors had "immediately" acted in the wake of the publication of the claims, holding that a senior trader's note of the meeting differed sharply from the Bank's own minute. This said blandly that "there was a brief discussion on extra levels of compliance that many bank trading desks were subject to when managing client risks".

The alternative is believed to be in the hands of the Financial Conduct Authority. It has yet to be seen by the Bank and Mr Bailey appealed for the writer to allow him to view it.

Questions over the mounting foreign-exchange trading scandal that involves regulators in Switzerland and the US as well as Britain, were tabled by MPs before what was the final session of the committee's inquiry into the near collapse of Co-operative Bank.

Mr Bailey launched what one MP described as "an exocet" at Britannia Building Society bosses, unequivocally blaming them for the Co-operative's problems with its banking operation.

Asked who MPs on the Treasury Committee should hold responsible Mr Bailey: responded: "The management of Britannia."

He accused them of being "in denial" about its problems and the risks posed by its commercial property loan book .That management was led by Neville Richardson, the chief executive of Britannia and then the Co-op Bank after the two merged in 2009.

In an earlier hearing he had strongly denied that the loan book could have sent the Co-op spiralling into a crisis that led to control of the bank falling to its bond holders – largely hedge funds – at least during his oversight of it. That came to an end with his 2011 departure.

But Mr Bailey said that there were systemic structural problems with Britannia's loan book.

And he argued that Britannia "didn't have the risk-management skills" to manage commercial-property lending. He likened the situation to the much-larger disaster at HBOS, which had to be rescued by Lloyds and was responsible for the latter later going cap-in-hand to the taxpayer.

Mr Bailey described the Co-op's "attitude" towards impaired loans as "out of line not only with what we felt but what other parts of the industry felt" after the Britannia merger. He also described Paul Flowers, the bank's beleaguered former chairman at the centre of various allegations over his conduct, as "pompous".

But he said he was "surprised" by the methodist minister's bumbling performance before the committee and said that other board members had found him to be "an effective chairman". He also said that where regulators had raised issues with Mr Flowers they had been dealt with.