Proposals to overhaul Libor, including enhanced powers for U.K. regulators to prosecute rate rigging, may be enacted early next year in a bid to revive confidence in the scandal-ridden benchmark and banking industry.
Financial Services Authority Managing Director Martin Wheatley’s “appropriate and credible” recommendations will be placed into legislation that should be approved early next year, Greg Clark, financial secretary to the U.K. Treasury, said in a telephone interview in London today. Wheatley proposed stripping the British Bankers’ Association of responsibility for the rate and adopting criminal penalties for interest-rate manipulation.
Wheatley began the review after Barclays Plc paid a record 290 million-pound ($470 million) fine in June for manipulating the London interbank offered rate, used to set rates for more than $300 trillion of securities. At least a dozen banks are being probed worldwide over allegations they colluded to manipulate the benchmark to profit from bets on derivatives.
The review “could mark at least the end of the beginning of the clean-up operation,” Andrew Tyrie, chairman of a lawmaker panel on finance, said in an e-mailed statement. The reforms could help restore “trust, both in Libor and in banking.”
Wheatley said some measures, including a tender for groups to bid to manage Libor and the phasing out of some currencies and maturities from the benchmark, will begin immediately.
“Governance of Libor has completely failed,” Wheatley said as he unveiled the report on the future of Libor in London today. “This problem has been exacerbated by a lack of regulation and a comprehensive mechanism to punish those who manipulate the system.”
Libor is calculated by a poll carried out daily by Thomson Reuters Corp. on behalf of the BBA, a banking industry lobby group, that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.
Libor is the biggest of a series of scandals to hit London’s financial industry, denting public trust in the industry.
Kweku Adoboli, a former UBS AG trader, went on trial this month for allegedly causing a $2.3 billion unauthorized trading loss. Standard Chartered Plc paid $340 million last month to settle allegations by New York’s banking regulator that it laundered $250 billion for Iran and HSBC Holdings Plc is also being probed over handling cash for sanctioned nations.
The FSA should receive greater powers to vet bankers who contribute to Libor, said Wheatley, who will become the chief executive officer of the Financial Conduct Authority, when the FSA splits into two agencies next year.