BoE calls for early Libor overhaul

Proposals for the overhaul of Libor, and also increasing the powers for UK regulators to prosecute rate rigging, might come into force next year, in order to boost confidence in the scandal-ridden benchmark and banking industry.

Financial Services Authority managing director Martin Wheatley's ''appropriate and credible'' recommendations placed into legislation could be approved early next year, according to Greg Clark, financial secretary to the UK Treasury. He was speaking in a telephone interview in London yesterday. Wheatley proposed that the British Bankers' Association be stripped of responsibility for the rate along with criminal penalties for interest-rate manipulation.

Wheatley initiated the review after Barclays Plc (BARC) paid a record 290 million-pound ($470 million) fine in June for manipulation of the London interbank offered rate, used for setting over $300 trillion of securities. At least a dozen banks are being investigated worldwide over allegations of collusion to manipulate the benchmark to profit from bets on derivatives.

The review ''could mark at least the end of the beginning of the clean-up operation,'' Andrew Tyrie, chairman of a lawmaker panel on finance, said in an e-mailed statement. The reforms could help restore ''trust, both in Libor and in banking.''

According to Wheatley some measures, which included a tender for groups to bid to manage Libor and the phasing out of certain currencies and maturities from the benchmark, would be introduced  immediately. Unveiling the report on the future of Libor in London yeterday, Wheatley said governance of Libor had completely failed. He added, the problem had been exacerbated by a lack of regulation and a comprehensive mechanism to punish those who manipulated the system.

Libor is worked out on the basis of a poll carried out daily by Thomson Reuters Corp on behalf of the BBA, a banking industry lobby group, that asked firms to estimate how much it would cost to borrow from each other for different periods and in different currencies.