DealBook: Britain Begins Review of Libor

Jerome Favre/Bloomberg NewsMartin Wheatley, managing director of the Financial Services Authority, the British regulator that will conduct the review into the rate-setting process.

LONDON – The British government on Monday officially announced a review into the rate-setting process at the center of the recent financial scandal.

The review comes as British and American regulators face mounting scrutiny for their passive approach in policing benchmark rates, including the London interbank offered rate, or Libor. Since Barclays struck a $450 million settlement last month over rate manipulation, lawmakers have blasted authorities for failing to stop the illegal activities at the British bank, despite evidence of problems.

The two-month, government-mandated inquiry will focus on whether British officials should regulate Libor and how governance of the rate can be improved.

Currently, the British Bankers’ Association, a London-based trade association, oversees the Libor process, but American and British government officials have raised concerns that there is not enough oversight into how the rate is set.

“It is clear that urgent reform of the Libor compilation process is required,” said Martin Wheatley, managing director of the Financial Services Authority, the British regulator that will conduct the review. “Such reform may include amendments to the technical definitions used for Libor, the associated governance framework and the role of official regulation.”

Libor Explained

The results of the review will be published by the end of September, and may prompt new legislation that criminalizes rate manipulation, according to a statement from the British government. The inquiry will not focus on specific actions by banks implicated in the Libor investigations.

Last week, the European Commission also announced plans to make Libor manipulation a criminal offense. American and British authorities are considering potential criminal prosecutions against traders involved in the rate-rigging scandal.

The British review follows a broad public outcry against the manipulation of Libor. Many of Barclays’ senior executives, including the firm’s chief executive, Robert E. Diamond Jr., and its chairman, Marcus Agius, have resigned in the wake of the scandal.

The British bank revealed last week that it is a defendant in a number of class action lawsuits connected to the manipulation of Libor and the European interbank offered rate, or Euribor.

The rate-rigging investigations could prove costly for many of the world’s largest financial institutions. Global banks may have to pay more than a combined $20 billion in fines and penalties in connection to Libor manipulation, according to estimates from analysts at Morgan Stanley.

Article source: http://dealbook.nytimes.com/2012/07/30/britain-launches-review-of-libor/?partner=rss&emc=rss