The U.K. Treasury announced recently that it plans to implement all Libor reform recommendations by Martin Wheatley, the managing director of the Financial Services Authority, including one that eliminates the British Bankers’ Association’s responsibility to the rate.
The BBA currently manages Libor and Thomson Reuters serves as the calculation and distribution entity. From 11 a.m. to 11:15 a.m. every business day, banks that participate in Libor-setting submit their estimated interbank borrowing rates to Thomson Reuters. Thomson Reuters then discards the highest and lowest submissions, using the middle two quartiles to calculate a rate average, Mortgage Strategy reports.
The same process is used 150 times to establish Libor rates for 10 currencies across 15 borrowing periods. The U.K. Treasury said, however, that a new administrator will be installed by an independent committee.
The British government is also seeking to criminalize Libor manipulation, bring Libor activities under regulation and provide the future Financial Conduct Authority, which will be headed by Wheatley, with the authority to force banks to submit to Libor.
“The government’s changes to legislation will ensure that those that attempt to manipulate Libor face the full force of the law,” Greg Clark, financial secretary to the U.K. Treasury, said, according to Mortgage Strategy. “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.”
Wheatley also proposed a new code of conduct for banks submitting interbank rates, the corroboration of Libor transaction data and the phase-out of several currencies, including the Australian, Canadian and New Zealand dollars, as well as the Swedish and Danish kroner.