LONDON (Reuters Breakingviews) - The Bank of England has an unenviable problem – what to do when a good employee does a bad thing. Incoming Deputy Governor Charlotte Hogg broke its own code of conduct by failing to declare her brother works at Barclays, one of the biggest institutions it regulates. If she stays, it would hurt the central bank’s reputation.
Hogg, chief operating officer since July 2013, is a respected member of the bank’s top team. In the recent vetting process for her new role by UK lawmakers she volunteered the information about her brother’s job. But she had kept the Barclays connection from her employer for the previous three years.
There is no suggestion Hogg misused her position or gained in any meaningful way from the connection. But given the code also covers the perception of conflicts, the breach is serious. Her new role in particular requires her to help decide prudential policy for UK lenders, of which Barclays is a key player. In evidence to lawmakers on Feb. 28, Hogg said she had helped write the latest code – thus making it all the more odd she did not comply with it.
Hogg’s manager, Governor Mark Carney, has already given her a verbal warning, and could ask her to recuse herself from any business involving Barclays. The Court of Directors, which oversees the bank, could express its displeasure in a public letter and make clear it doesn’t take the oversight lightly.
Neither of those would undo the damage. The perception of being whiter than white is critical for an institution that regulates a sector which in 2013 had assets on a residency basis amounting to 450 percent of GDP. As of last March the UK potentially has the power to send senior managers of their regulatory wards to jail. With that kind of power comes the need for flawless supervisory standards.
The Bank of England is one of the bulwarks of UK institutional credibility, but this cannot be taken for granted. It emerged from the Brexit referendum dogged by criticism over a perceived bias towards staying in the European Union. Enforcing its own rules without fear or favour is the best way to prove these attacks are groundless.