Libor needs “complete overhaul” says FSA’s Martin Wheatley

Britain’s Libor interest rate needs a “complete overhaul” in the wake of the Barclays rate-rigging scandal, the Financial Services Authority’s (FSA) Martin Wheatley said in a Libor review.

The FSA made the recommendation in an independent report commissioned by British Finance Minister George Osborne due to this year’s scandal.

“The reason we are here is that we have been misled. The system is broken and needs a complete overhaul,” FSA managing director Martin Wheatley said in his speech.

“The disturbing events we have uncovered in the manipulation of Libor have severely damaged our confidence and our trust; it has torn the very fabric that our financial system is built on,” he continued.

Wheatley argued that industry body, the British Bankers’ Association, must be stripped of its role in setting Libor, with oversight responsibilities to be handed to a new group.

“Responsibility should be transferred to a new administrator. We are today starting an open tender process to invite organisations to take over the running of Libor,” he said.

Wheatley stated that the FSA needs sanctioning powers to punish those who manipulated Libor, which is used in a vast number of global financial transactions totalling at least $300trillion.

“This is not a London issue. This is a global issue and is why I have been working in partnership with my counterparts in the United States, Japan, Switzerland, the European Union and elsewhere,” he said.

The scandal erupted in June when Barclays bank was fined £290 million by British and US regulators for attempted manipulation of Libor and Euribor inter-bank rates between 2005 and 2009. The London Interbank Offered Rate (Libor) is used all over the world, affecting the amount banks, businesses and individuals pay to borrow money. Euribor is the euro-zone equivalent.

The FSA on Friday argued for a new regulatory structure for the Libor interest rate process, which will include “criminal sanctions for those who attempt to manipulate it.”

Libor submissions must be supported by “relevant trade data” and “proper record-keeping with greater rigour and transparency,” Wheatley said in his speech.

He added: “There is a lack of a comprehensive sanctions regime to ensure that those who manipulated the rate are brought to book.”

Barclays was the first bank to be fined as part of a global investigation into manipulation of interest rates that are crucial to operating financial and global markets.

The Barclays scandal led to the resignations of Barclay’s Chief Executive Bob Diamond, Chairman Marcus Agius and Chief Operating Officer Jerry del Missier.

Zanib Asghar