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Libor scandal prompts overhaul by UK regulator

Libor scandal prompts overhaul by UK regulator
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Britain’s financial regulator has launched plans to overhaul Libor, the process used to determine inter-bank interest rates.

Libor’s credibility was undermined when it was discovered that some big banks had been manipulating it.

Now the UK’s Financial Services Authority has announced a review of the process which sets interest rates for everything from credit card payments to complex financial instruments known as derivatives.

“The existing structure and governance of Libor is no longer fit for purpose and reform is needed,” the FSA’s managing director, Martin Wheatley, said.

“It’s completely untenable that we can go forward without some level of regulatory change,” Wheatley added.

In his proposals, Wheatley makes clear alternative benchmarks to Libor should be used in some cases while the calculation of the rates themselves needs to be done differently to make it harder to fiddle.

“The short and medium term focus has to fix Libor and then there is a broader question about whether there are better rates going forward,” Wheatley said.

The industry will have until September 7 to respond to Wheatley’s review with final recommendations to be made by the end of next month. Some of those are expected to be enshrined in a new law next year, with changes to bank practices introduced earlier.

At least 12 banks are being investigated for rigging Libor.

Barclays has been front and centre of the scandal. It paid a hefty fine – the equivalent of 370 million euros – and several top bosses resigned.

Trying to restore its credibility Barclays has just named respected former Bank of England and Treasury official David Walker as its new chairman.

Walker, 72, wrote one of the most significant governance manuals for UK banks and has investment banking experience from 17 years at Morgan Stanley.