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The City watchdog will on Friday fire the starting shot on a dramatic overhaul of key benchmark borrowing rates with a package of proposals designed to restore trust following the recent Libor scandal.
Martin Wheatley, who heads conduct regulation for the Financial Services Authority and has been asked by the government to review Libor , will say the existing structure and governance of the rate is “no longer fit for purpose” and must be fixed.
His suggestions for reform include scrapping Libor altogether and replacing it with a borrowing rate based on actual trades, which could be overseen by a new independent body rather than the British Bankers’ Association .
He also considered introducing criminal sanctions in respect of potential Libor manipulation – although the discussion paper makes clear this would be difficult for the regulator to do.
“The attempted manipulation of Libor and its European equivalent Euribor have cast a shadow over the industry at large and the construction and governance of the benchmark themselves,” he will say in a speech at Bloomberg this morning.
Mr. Wheatley’s proposals are the initial step of an independent review that was ordered by George Osborne, the UK chancellor, after Barclays became the first bank to be fined for attempting to rig Libor.
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