The body which oversaw the management of the London Interbank Offered Rate, Libor, has also been stripped of its responsibilities and heavily criticised for being a “disaster” after several banks were implicated in a fixing scandal which was blamed for tearing “the very fabric that our financial system is built on”.
Martin Wheatley, managing director of City watchdog the Financial Services Authority (FSA), yesterday unveiled a ten-point plan to overhaul Libor.
The new plan proposes that bankers convicted of manipulating the rate face criminal penalties and that a new agency take over management of Libor after the banking trade body, the British Bankers’ Association (BBA), failed to prevent widespread abuse. It also called for tougher controls on banks involved in the rate’s calculation.
Wheatley accused the BBA of being careless in policing Libor. He also set out the formation of an independent panel to lead the appointment process for a new group to run Libor.
The FSA plan was broadly welcomed.
Andrew Tyrie MP, chairman of the Treasury select committee, said the report was a “welcome initial step” but added: “First, it has rightly stripped the BBA of responsibility for Libor – their handling of it was a disaster.
“Second, it brings Libor within the scope of regulatory oversight and criminal law. Not before time. Third, the review is proposing a number of technical amendments to ensure Libor can’t be rigged again.”
Bank of England governor Sir Mervyn King called for a swift implementation of the proposals.
But Kevin Burrowes, PwC’s UK financial services leader, warned: “More thought on how Libor operates during a stressed scenario is needed.”
So far, Barclays is the only bank which has been fined after it admitted submitting false reports. Several others, including Citigroup, JPMorgan Chase & Co and Royal Bank of Scotland are known to be under investigation.