Hong Kong Strengthens Hibor Rules as Regulator Probes UBS

Hong Kong’s central bank moved administration of setting interbank lending rates in the city to the Treasury Markets Association from the banks’ lobbying group amid a global probe into manipulation of borrowing costs.

Hong Kong interbank offered rate fixings that have little demand, such as four- and five-month rates, will also be phased out, the Hong Kong Monetary Authority said in a statement today. Other measures included a decision to review the list of reference banks that submit the Hibor rates every year, instead of every two years.

The changes come amid a global regulatory crackdown on the manipulation of interbank lending rates that are at the heart of the biggest scandal in banking history. Royal Bank of Scotland Group Plc is set to pay 400 million to 500 million pounds ($783 million) in fines for manipulating interest rates, two people with knowledge of the matter said. That follows fines levied against Barclays Plc and UBS AG.

The city will also develop a submission guideline for the rate, Arthur Yuen, deputy chief executive at the authority, said at a briefing today. Hong Kong is also continuing to review whether UBS employees tried to rig Hibor, Yuen said, declining to predict when the probe may end.

An announcement on the fines to be paid by Edinburgh-based RBS for manipulating the London interbank offered rate, or Libor, may be made as soon as today, the people said, asking not to be named because they aren’t authorized to speak publicly. An RBS unit will plead guilty to criminal charges as part of a deal with the U.S. Justice Department, a person familiar with the talks said.

Biggest Scandal

Libor is the global benchmark for more than $300 trillion of contracts, from mortgages and student loans to interest-rate swaps. The attempts to manipulate the rate flourished for years, even after bank supervisors were made aware of the system’s flaws.

Hong Kong will also develop a surveillance and governance structure for the administrator’s function, Yuen said. The Treasury Markets Association is made up of institutions and practitioners in the treasury market and overseen by the HKMA’s deputy chief executive.

Hibor is currently set based on an average of 14 quotes submitted by 20 banks including BOC Hong Kong Holdings Ltd., HSBC Holdings Plc and Standard Chartered Plc, according to the Hong Kong Association of Banks’ website. The three highest and three lowest submissions are excluded from the average.

The composition of the panel of reference banks will be reviewed every 12 months, said Edmond Lau, executive director for monetary management at the authority. There is no need to change the number of members, he said.

The changes will be effective in six months, Yuen said.

Before it's here, it's on the Bloomberg Terminal.