Libor Oversight to Be Handed to New U.K. Finance Regulator

Regulatory oversight of Libor rates will be handed to the U.K. Financial Conduct Authority on April 1, under rules meant to restore credibility to the tainted benchmark.

The measures will ensure that whatever group eventually takes responsibility for setting the London interbank offered rate must corroborate submissions and monitor suspicious conduct, the Financial Services Authority said in a statement today. The administrators of the rate and banks that participate will have to appoint a person approved by the regulator to oversee compliance.

Libor, used to set rates for more than $300 trillion of securities, is being overhauled after three lenders were fined for attempting to manipulate the benchmark and more than a dozen other lenders are still being investigated.

“Confidence and trust are critical to financial markets,” said Martin Wheatley, the chief executive officer-designate of the FCA, which will replace the FSA on April 1. “That trust has been eroded by the Libor scandal and the recent enforcement action against several banks. These new rules today should help restore that faith and bring integrity back to Libor.”

Wheatley carried out a review at the request of Chancellor of the Exchequer George Osborne. Barclays Plc, UBS AG and Royal Bank of Scotland Group Plc have been fined more than $2.5 billion by U.S. and U.K. regulators for manipulating the rate.

Axed Benchmarks

Wheatley recommended in September that dozens of the currencies and maturities that make up the benchmark where there isn’t enough trading data to set them should be axed, and that the British Bankers’ Association, the lobby group that created the benchmark in 1986, should be stripped of responsibility for setting the rate.

The U.K. government formally started the search for a replacement body to set Libor last month. A seven-member panel including Sarah Hogg, chairman of the Financial Reporting Council, Wheatley, and the Bank of England’s Paul Fisher will recommend a new administrator this year, the Treasury said. Members of the BBA agreed to relinquish oversight.

The rate has been calculated by a poll carried out daily by Thomson Reuters Corp. on behalf of the BBA that asks firms to estimate how much it would cost to borrow from each other for different periods and in different currencies. The top and bottom quartiles of quotes are excluded, and those left are averaged and published for individual currencies before noon in London.

Criminal Offense

The U.K. government said in October that it planned to implement Wheatley’s recommendations “in full,” and to make it a criminal offense for those who misreport it and give regulators the power to oversee the setting of the rate.

Under the new rules, banks must also develop clear conflict of interest policies, the regulator said. Lawmakers criticized banks for having employees who made submissions for Libor to the BBA working too closely with traders who based transactions on the rate.

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