The Bank of England carried out due diligence three times on a firm that was subsequently revealed to have given paying clients early access to market-sensitive information without the Bank’s knowledge.
Bank officials scrutinized the technology supplier Encoded Media three times between 2010, when it first became a technology supplier to the Bank, and 2020, the Guardian can reveal. However, Encoded’s status as a supplier to the Bank was only revoked following media inquiries in December.
The Bank immediately disabled the company access to a backup audio feed after the Times revealed the breach and said the company would have no part in future press conferences, calling the sale of access “wholly unacceptable” and saying the feed was “ misused ”.
While no non-public information was revealed, the audio feed is allowed unidentified paying customers to hear the Bank Governor Mark Carney’s market-moving words at press conferences as much as eight seconds ahead of rivals listening via other means – giving a potentially lucrative advantage .
The revelation has dealt a blow to the Bank’s credibility in securing crucial national infrastructure and it faces scrutiny from MPs and an investigation by the Financial Conduct Authority. Mel Stride, the chair-elect of parliament’s Treasury select committee, said he expected the MPs to ask “searching questions” of the outgoing governor, Carney, and his replacement, Andrew Bailey, at hearings planned for this week after the Guardian’s reports about the departure of multiple staff.
The breach has prompted criticisms of a perceived lack of accountability at the Bank. It has also raised questions about why the potential for press conferences to be targeted in this way was not discussed in regular, confidential discussions between security bosses at the Bank and the European Central Bank, its eurozone counterpart.
A person with knowledge of the ECB’s processes said the central bank detected similar targeting of press conferences by companies hoping to give traders an edge as early as two or three years ago, after spotting advertisements published on social media by unnamed companies. The ECB installed its own high-speed audio line in September 2020 in order to give equal access to anyone who wanted it at no cost.
However, the Bank said it could find no record of a briefing on any such detections made by the ECB. The ECB declined to comment on its security procedures.
Encoded Media is thought to be the supplier to the Bank whose access to the backup audio feed was revoked.
Encoded Media’s two directors, Philip Wand and Tom Sillence, are directors of Statisma Group Holdings while also serving as directors of Microlatency. Encoded and Statisma are based in the same office, which was also listed on Microlatency’s website.
Microlatency, which was put into liquidation in January 2020, specialized in “ultra-low latency delivery of key live events ”, according to an archived version of the website www.microlatency.com . On the publicly available site, it said: “We use private networks. Not the internet. ”
The public website said: “We speed up the delivery process. You get to hear the news before others do. ”
The Times reported that Microlatency was selling access to the audio feed to hedge funds and other investors.
Meanwhile, Statisma’s website states that it “started out in 2010 covering public events in the UK, such as Bank of England press conferences and UK parliament sessions ”.
Statisma’s ads said it allowed users “to hear him first”, according to a post before Mark Carney’s press conference on 7 November.
In an emailed statement, Wand said Encoded or Statisma did not hijack audio feeds in any way. He said the companies paid to receive the feed directly from Bloomberg and that it was licensed to use it. He added that previous reports had “already caused economic loss to Encoded Media and Statisma, as well as valuable distress to its directors who run an entirely reputable small technology business with limited resources”.
He said: “If we are quicker at delivering content to our clients, it’s only because we have the knowledge and technology to send that content, taken from the Bloomberg feed, to our clients faster than others.
“Although we are not the subject of any investigation our preference is not to comment any further until the FCA have completed their inquiries and publish their findings. We are absolutely confident those findings will be that no breach of any law has occurred. ”
Wand did not comment on Microlatency, yet has consistently denied any sort of wrongdoing committed by Encoded Media linked companies. Sillence did not respond to requests for comment.
A Bank spokesman declined to respond to detailed questions about the due diligence process used. The Bank has previously said that its restructuring was carried out to strengthen its information security and that it is confident in its ability to protect against security threats.
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