LONDON--The U.K. Treasury said Monday its review of the Libor rate, manipulated by Barclays Plc (BARC.LN) and a benchmark for trillions of dollars worth or derivatives trade, will be completed by October.
Libor, the London Interbank rate, is the cost of borrowing between banks. Barclays were forced to pay roughly $450 million to U.K. and United States regulators after its staff attempted to alter Libor to turn a profit and mask the bank's true borrowing costs. Its former chief executive Robert Diamond resigned in the wake of the scandal.
"Urgent reform of the Libor compilation process is required," said the Financial Services Authority's managing director Martin Wheatley.
The review will look at how Libor is constructed, including the feasibility of using actual trade data to set the benchmark, the governance structure for Libor and the potential for alternative rate-setting processes. Currently Libor is calculated by banks reporting borrowing costs to the British Bankers' Association daily. Libor is used to settle derivatives, bets by investors on what the rate will be, and also feeds into mortgages.
Mr. Wheatley's review will also consider whether similar measures are required for other price-setting mechanisms in the financial markets. It will review the scope of the U.K. civil and criminal sanctioning powers in respect to market abuse and the abuse relating to the setting of Libor.
The FSA cannot impose criminal sanction for the manipulation of Libor.
The Treasury said a discussion paper on the Libor review will be published on Aug. 10, allowing interested parties four weeks to submit written responses.
The review will run alongside the parliamentary inquiry into the Libor scandal, which is being led by Treasury Select Committee Chairman Andrew Tyrie and is due to report back at the end of the year.
Write to Ainsley Thomson at firstname.lastname@example.org
(Jessica Hodgson and Max Colchester in London contributed to this report)
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