THE UK government has set out the terms for a revamp of Libor, the inter-bank lending rate, that was rigged by a number of banks.
The review will be conducted by Martin Wheatley, a top official at the Financial Services Authority. It will look at how Libor is constructed, the feasibility of using actual trades, governance, the potential for alternative rate-setting processes and how to move to a new regime.
It will also examine sanctions for abuse of Libor and whether the rate, currently supervised by its sponsor, the British Bankers’ Association, should be formally and directly regulated under UK law.
“The benchmark rate is used globally for trillions of dollars worth of financial contracts. Therefore, it is clear that urgent reform of the Libor compilation process is required,” Wheatley said in a statement published by the Treasury.
He will publish a discussion paper on 10 August to kick off a four-week public consultation, with final conclusions by the end of September.
Chancellor George Osborne will then consider how Wheatley’s recommendations can be incorporated into a financial services draft law already making its way through parliament.
The FSA and US authorities fined Barclays a record £290 million for trying to influence Libor.
Royal Bank of Scotland chief executive Stephen Hester last week admitted that it, too, faced a fine for its role in the rate-rigging scandal as authorities across the world investigate about 20 banks.