The Financial Services Authority (FSA) will announce regulatory reforms to the London Interbank Offered Rate (Libor) later today.
Overseen by the British Bankers’ Association (BBA), Libor is the interest rate which banks pay to borrow from each other and is set by a panel of banks for 15 different maturities ranging from overnight to 12 months across 10 different currencies. In June this year, Barclays was fined £290m after its traders tried to rig Libor, a financial scandal which implicated a number of other investment banks and led to the resignation of Barclays chief executive Bob Diamond.
Senior FSA regulator Martin Wheatley is expected to proposed that Libor is reduced to five currencies and four maturities, removing lesser-traded currencies and maturities which will help prevent manipulation of prices. He will also say that traders who are found guilty of manipulating rates should face criminal charges:
“Governance of Libor has completely failed, resulting in the sort of shameful behaviour that we have seen. This problem has been exacerbated by a lack of regulation and a comprehensive mechanism to punish those who manipulate the system.”
Earlier this week, a Bloomberg report showed traders at Royal Bank of Scotland (RBS) using instant messaging to discuss how the bank’s Libor fixing had caused global rates to move. RBS is expected to be next in line to face charges with other banks to follow.
Photo by Jason Webber in the Londonist Flickr pool.