Ombudsman Emily O’Reilly says she would write next week to Draghi, arguing that ECB officials should not give an investor any advantage over rivals by meeting them ahead of setting policy — such as interest rates.

Reuters
Frankfurt

The European Union’s top watchdog has urged the European Central Bank to stop meeting market players such as hedge funds shortly before setting policy, adding to pressure for it to tighten its rules of engagement.
Ombudsman Emily O’Reilly said she would write next week to ECB President Mario Draghi, arguing that ECB officials should not give an investor any advantage over rivals by meeting them ahead of setting policy — such as interest rates.
The recommendation could reignite a debate about transparency at Europe’s arguably most powerful institution, which sets the cost of eurozone borrowing, supervises banks and was part of the ‘troika’ involved in overhauling troubled states such as Greece.
O’Reilly’s intervention follows a closed-door hedge-fund dinner earlier this year where a top ECB official revealed market-sensitive information.
Recently published diaries of officials showed that hedge funds and banks regularly met policy-setters, even shortly before key decisions.
“It has already been established by the ECB, in its speaking engagement guidelines, that it should not give a prestige advantage to certain groups over others when a board member meets them,” O’Reilly told Reuters.
“Rules on the quiet period at the moment refer to speeches and public appearances. But shouldn’t the quiet period also apply to bilateral meetings?” she said. In her Ombudsman role, O’Reilly keeps tabs on European institutions to ensure that they behave ethically and are accountable to the public.
Her remarks come amid a rethink at the ECB on key transparency issues, such as the ‘quiet period’. This refers to the time when policy-setters avoid discussing central bank business with outsiders.
Although the Ombudsman’s recommendations have no legal weight, they add pressure to the ECB to fall into line with common practice elsewhere. The ECB declined to comment.
O’Reilly’s comments come after ECB diaries revealed that Benoit Coeure, an influential member of the ECB’s executive board, met BNP Paribas in September 2014 just hours before cutting the deposit rate — the charge on banks for parking money at the ECB.
Separately, Coeure had told an audience including hedge funds this May about plans to accelerate bond buying.
The euro fell when it was announced to the public the following day and some investors cried foul. The ECB said the delayed publication of his speech was accidental.
The Bank of England, in contrast, has strict published rules that prohibit its Monetary Policy Committee members from meeting with ‘market participants’ roughly one week ahead of the meeting at which they set policy such as interest rates.
The ECB has no such restriction although one person familiar with its thinking said that it was “only a matter of time” before rules would be introduced to stop top officials seeing bankers at such sensitive times.
O’Reilly welcomed an ECB move to publish the diaries of its six-person executive board from February next year, which followed a successful freedom of information request by a journalist to make them public.
“Sunlight is the best disinfectant,” she said, adding that the ECB’s growing influence, including as a supervisor of banks, required a rethink of its transparency.
“It might be obscure now ... but (the ECB) will become a household name in the years to come,” said O’Reilly, summarizing a message on transparency she said she had delivered to Draghi in person.
O’Reilly’s critical stance is shared by others, such as Adam Posen, who used to sit on the Bank of England’s Monetary Policy Committee and now heads Washington think tank the Peterson Institute.
“The blackout period is a really big deal. I would go totally into hiding. I could not talk to people,” said Posen.
“It seems like the ECB have not been enforcing that. It’s out of step with other central banks.”