Out-Law News 2 min. read
18 Oct 2012, 12:03 pm
The changes will be made in the form of amendments to the Financial Services Bill, which is currently before Parliament, or to the Banking Reform Bill, which was published in draft form earlier this month.
In a statement to Parliament (3-page / 48KB PDF) Financial Secretary to the Treasury Greg Clark confirmed that the Government had accepted the recommendations of Martin Wheatley's independent review of LIBOR "in full". This includes replacing the British Banking Association (BBA) as operational administrator of the rate. Baroness Hogg has been appointed to lead a panel that will identify an "appropriate successor" to the BBA, Clark said.
"The Government is determined to restore the credibility of LIBOR," Clark said in a statement. "This is why we have accepted Martin Wheatley's recommendations in full and will begin the process of implementing them without delay. The Government's changes to legislation will ensure that those that attempt to manipulate LIBOR face the full force of the law. But this is just one part of the process, the banks and the BBA will have to play their part to ensure that reform is effective and LIBOR's reputation is restored."
LIBOR is a daily reference rate based on the interest rates at which banks can borrow unsecured funds from other banks. It is widely used internationally as the pricing basis for some $550 trillion worth of financial instruments including interest rates and currency hedging instruments, and to set the interest rate for syndicated loans.
The Government commissioned Wheatley, who is the managing director of City watchdog the Financial Services Authority (FSA), to carry out an independent review of the regulation of LIBOR in July. This was prompted by an announcement by Barclays Bank on 27 June that it was to pay total penalties worth £290 million to regulators in the UK and US for "misconduct" in relation to LIBOR submissions. The Serious Fraud Office (SFO) has since confirmed that it is investigating "a number of financial institutions" in the UK over alleged manipulation of the rate. It is proceeding under existing fraud and false accounting laws, as there is not yet a specific criminal offence in relation to LIBOR.
The Financial Service Bill will be amended to bring LIBOR-related activities, including the administration of the rate as well as banks' own submissions, within the scope of statutory regulation. This will allow the FSA and future regulators to take direct action against firms for misconduct, including financial penalties and banning firms from carrying out other regulated activities. The Bill will also create a new criminal offence of making misleading statements in relation to benchmarks such as LIBOR, as well as amending the language of existing offences.
The Bill will also provide the new Financial Conduct Authority (FCA), which is to assume the FSA's conduct and compliance functions when the latter regulator is dismantled next year, with specific powers in relation to LIBOR. The FCA will be able to require banks to provide submissions to the rate, with reference to a Code of Practice which will be produced by the future rate administrator under approval of the FCA.
In his statement to Parliament, Clark said that the BBA and its replacement would be tasked with implementing Wheatley's recommendations that did not require action from Government. These include phasing out the publication of LIBOR rates for "those currencies and maturities" where the rate is not heavily used by market participants and there is an available alternative, as well as some structural changes.