Under rules established by the U.K.’s Financial Services Authority, British banks’ participation in Libor submissions will remain voluntary as the financial watchdog seeks to restore credibility to the benchmark after last year’s rate-rigging scandal.
The European Union is considering a plan to force the region’s banks to participate in Euribor submissions in an effort to safeguard the credibility of the rate. Dutch lender Rabobank, Switzerland’s UBS and U.S-based firm Citigroup have said they did not want to participate in the Euribor-setting process any longer, Reuters reports.
Regulators have expressed concern that if too many banks decide to opt out of the rate-setting process, the quotes submitted by other banks would not accurately represent the industry, and the rate could be easily manipulated. Banks submit estimates of the rate at which they would be able to borrow from other banks, and the submissions are then used to compile Euribor.
The FSA said on Monday that it was still examining the feedback received on the issue.
“These responses broadly agree with our approach that participation in Libor should primarily be on a voluntary basis,” an FSA spokesman said, according to Reuters. “The successful reform of Libor requires the active participation of all key stakeholders.”
Since news of the scandal surfaced, Britain’s RBS and Barclays, as well as Swiss lender UBS, have paid a total $2.6 billion for their participation in the Libor rate-rigging, and more banks are also expected to face penalties.
“These new rules today should help restore that faith and bring integrity back to Libor,” FSA managing director Martin Wheatley said, Reuters reports.
The FSA said that British banks will face costs of up to $827,000 for compliance and an initial, one-time cost of up to $3.8 million for systems changes. The regulator dropped an initial requirement that banks hire an external auditor to examine their quote submission controls, and banks must now instead appoint an auditor “on a regular basis.”
Banks must also disclose reasons why a less frequent check by regulatory examiners would be acceptable. The FSA will approach lenders within the next 12 months to determine compliance, according to Reuters.