Last checked at 
(Adds details of exchange with lawmaker in final threeparagraphs)
LONDON, Jan 21 (Reuters) - Britain's vast foreign exchangemarkets need more regulation in the wake of a currencyrate-fixing scandal that landed global banks with heavy fineslast year, a lawyer who investigated the case said on Wednesday.
Anthony Grabiner, speaking to British lawmakers, said careshould be taken not to undermine the effectiveness of London asa centre for foreign exchange trading.
"But the mere fact that the behaviour, which has beenidentified by the FCA (Financial Conduct Authority), is in factgoing on, demonstrates that there needs to be some regulation ofthis marketplace," he said.
Grabiner said the issue was being looked at by the FCA, oneof Britain's financial market regulators, and by Bank of EnglandDeputy Governor Minouche Shafik who is due to present a reporton how markets should be governed in June.
"My own view is that you cannot leave a market of this sizein an unregulated form," he said.
Grabiner, a leading London barrister, was talking tolawmakers about his investigation into the role of the Bank ofEngland in the foreign exchange case. The Bank dismissed itschief foreign exchange dealer, Martin Mallett, as the review waspublished in November.
Grabiner said Mallett had failed to tell managers of his"serious concerns" about the exchange of information by tradersat banks because he felt he would be embarrassed if he had toshare it with regulators who would be very worried about it.
"It was apparent that although that was his concern, he keptit within his own breast," Grabiner said. "That is the reasonwhy my conclusion was that it was not appropriate to criticisepeople above him or below him, because he kept it to himself."
Six banks were fined a total of more than $4 billion inNovember for failing to stop traders trying to manipulatecurrency markets.
In his report published last year, Grabiner said there wasno evidence any Bank official had been involved in unlawfulbehaviour in relation to the FX investigation.
In a testy exchange on Wednesday, he rejected suggestions bya lawmaker that he should have pressed Mallett more about aconversation that Mallett had with a bank trader who seemedconcerned about possible market manipulation by other tradersbefore apparently backing off that view in the exchange.
"You simply pick out a little nugget and tell me what youthink it means and all I am respectfully suggesting to you isthat you may actually be wrong and I may actually be right,"Grabiner said.
The chairman of the committee said he would seek furtherdocumentation from Grabiner relating to what Mallett told himabout the discussion with the unnamed bank trader. (Reporting by William Schomberg; Editing by CatherineEvans/Hugh Lawson)
