UK faces balancing act with Libor reform proposals

Wed Sep 26, 2012 4:51am EDT
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By Huw Jones

LONDON (Reuters) - Britain is expected to propose that Libor, the interest rate at the center of a rigging scandal, is anchored to real transactions and that an industry body is stripped of its supervisory role to restore trust in the benchmark.

Derivatives, banking and asset management industry sources say the UK's financial watchdog has a tricky balancing act to win back confidence in the London Interbank Offered Rate, that was rigged by Barclays and other banks.

Martin Wheatley, the Financial Services Authority's managing director who has warned banks to clean up their act, faces global calls for speedy reform of the Libor rate as well as pressure from cautious users who are resisting radical change.

Wheatley is expected to recommend on Friday the use of actual market trades rather than quotes to compile Libor and to formally end the role of the British Bankers' Association (BBA) in overseeing it in favor of more formal regulation.

The BBA said on Tuesday that it would support any recommendation by Wheatley for a change of responsibility.

The government is set to include some of Wheatley's proposals in a financial law now being finalized in parliament.

The FSA needs to demonstrate Britain is serious about reform to quell domestic and international anger and to restore faith in its banking industry after Barclays was fined a record 290 million pounds in June for rigging the benchmark.

UK, U.S. and other authorities are investigating other banks, with Britain's Royal Bank of Scotland expected to be the next to settle manipulation charges.   Continued...

A man is seen behind the entrance door of the offices of the Financial Services Authority (FSA) in Canary Wharf, London, November 19, 2010. REUTERS/Simon Newman