The review commissioned by the oversight committee and chaired by Lord Grabiner detailed communications, including emails and telephone call transcripts, between Martin Mallett and FX market participants going as far back as 2006.

In them, Mallett expressed concern that communications between traders could be seen as collusion and possible market manipulation.

In one call on October 3, 2011, Mallett and a trader at a bank discussed the activities of brokers and banks around the so-called "London fixing", the one-minute window when global benchmark exchange rates are set.

Trader: … It's being, it's being exaggerated shall we put...

Mallett: Well that's market manipulation isn't it?

Trader: Yep absolutely.

And in a call On November 28, 2012, Mallett told a market commentator he felt the FX market was "too chatty" and there was a "fine line" between that and collusive behaviour.

"I'm a little bit nervous about the FX market's approach to benchmarking, fixing, because of its inherent chattiness and like I say, there's a fine line between chattiness and, and acting in a way which disadvantages others," he said.

Despite being uncomfortable with the practice, Mallett did not escalate the matter, which "constituted an error in judgment that deserved criticism, but such criticism should be limited in that the individual was not acting in bad faith", the BoE said. He was not aware of specific instances of such behaviour.

Attempts to reach Mallett for comment were unsuccessful.

The BoE said his dismissal on Tuesday was "unrelated" to the scandal in which five banks have been fined $3.4 billion for failing to stop their traders from trying to manipulate foreign exchange markets.

In his report, Grabiner said there was no evidence any Bank official had been involved in unlawful or improper behaviour in relation to the FX investigation, and that none knew of improper behaviour by traders at banks based on shared confidential information, including aggregated information about client orders.

Grabiner's report said Mallett was aware that traders were sharing information, which was not necessarily improper but could increase the potential for improper conduct.

CHIEF DEALERS' MEETINGS SCRAPPED

Mallett, who joined the BoE in September 1986, was suspended in March as the Bank looked into what officials might have known about alleged manipulation of key currency rates by traders.

The BoE also said on Wednesday it had scrapped the formal meetings with London-based chief currency dealers that had been held regularly until last year, just before the global investigation got under way.

The meetings, which were chaired by Mallett, have been "disbanded" and there will be "no more", a BoE spokesperson told Reuters.

The Foreign Exchange Joint Standing Committee's chief dealers' subgroup (CDSG), held under the auspices of the BoE to discuss industry issues, met up to four times a year.

Its first meeting was in 2005, and the last at the BoE's offices in Threadneedle Street, London, in February last year.

Separately, British finance minister George Osborne said Britain was taking "tough action to clean up corruption by a few so that we have a financial system that works for everyone".

The country's regulatory response to the financial crisis meant "the world can have confidence in the integrity of Britain's financial markets".

(Reporting by Jamie McGeever and William Schomberg; Editing by Andrew Roche)

By Jamie McGeever and William Schomberg