Banks involved in the LIBOR process are looking for a “scientific” method of setting the interbank rate that will lower their risk, according to the top markets regulator in the U.K. They are trying to limit their liability even as London-based Barclays, hit with a record fine over its role in manipulating the London interbank offered rate (LIBOR), named a new chairman to replace the one felled by the scandal.
Bloomberg reported Friday that Martin Wheatley, managing director of the Financial Services Authority (FSA), said in the report that banks on the LIBOR panel want the rate to be set “on a very clean basis that takes their risk down.” One method under consideration is a “trade reporting mechanism” that will calculate the rate based on actual data. Several proposals to revamp LIBOR were to be released later in the day.
At least a dozen banks are currently being investigated for their parts in the scandal, in which banks are alleged to have colluded to tilt the rate one way or another to favor transactions in which they were engaged.
Wheatley, who is to become the CEO of the Financial Conduct Authority next year when the FSA is divided into two separate agencies, is engaged in a review of the oversight and setting of LIBOR and will issue a report that is due to be presented by the end of September. He has already begun to meet with banks on the panel and will also be soliciting input from the financial industry.
The report is expected to become the basis for amendments to parliamentary legislation, according to Britain’s chancellor of the Exchequer, George Osborne. Among the possibilities Wheatley has already addressed in a discussion paper are strengthening sanctions for manipulating the rate, introducing a code of conduct for banks involved in the process, and mandating that the process itself be overseen by a regulator instead of by the British Bankers’ Association (BBA).