Britain’s top financial watchdog says it will fix the Libor rate setting system rather than scrap it.
Libor was hit by scandal when it was discovered some banks had giving distorted the information to manipulate the rate – which is used to determine the interest charged on loans to companies and individuals.
Martin Wheatley, head of the Financial Services Authority said: “The system is broken and needs a complete overhaul.”
He added: “The disturbing events that we have uncovered in the manipulation of Libor have severely tarnished confidence and our trust: it has torn the very fabric of our financial system. Today, we need to press the reset button, we need to get back to what this reference rate is supposed to be, we need to restore integrity to a globally important benchmark, and we need to get to a position where individuals act with integrity.”
In June Barclays, agreed to pay 352 million euros to US and British authorities to settle allegations that it tried to move Libor to help its trading positions.
Barclays and other participants who have been accused of rigging the London Inter-bank Offered Rate will now be audited on the information they provide.
The FSA also wants to be able to bring criminal charges against those found to be trying to fix the rates.
Britain’s government commissioned Wheatley and the FSA to report on reforming Libor and is expected to back the findings in full.
Legislative changes will be inserted into a financial services bill now being approved by parliament.
The British government sees the reform of Libor as critical to restoring global confidence in London as a financial centre.