Since we reported that the British Bankers Association (BBA) was forced to review the way that the London inter bank offered rate (LIBOR) was calculated, the issue has escalated.

Investigations into various banks' involvement in the manipulation of LIBOR are ongoing.

LIBOR is based on figures provided by certain panel banks. These figures are notional, based on a market which does not exist, and so regulating them is inherently difficult.

Last week (28 September) saw the release of the results of The Wheatley Review (undertaken by Martin Wheatley) which was commissioned by the government in July. The review concludes that LIBOR should be reformed rather than replaced, but recommends a complete overhaul with increased regulation, the involvement of the FSA and real data being used to help establish the LIBOR. Recommendations include:

Introduction of statutory regulation of LIBOR. This would ensure that persons submitting data have to be specifically authorised, and will introduce criminal sanctions for those involved in manipulation. The FSA will be far more involved - Mr Wheatley is due to head the Financial Conduct Authority when it supersedes the FSA next year and will therefore play a large role in enforcing the new regulation.

The BBA will no longer be responsible for LIBOR. In a statement made earlier this week, the BBA said "if Mr Wheatley's recommendations include a change of responsibility for LIBOR, the BBA will support that". The new administrator should provide 'credible internal governance and oversight' and ensure transparency and scrutiny of submissions.

Use of real data. Submitting banks should use transaction data to corroborate their submissions and a new code of conduct will include a requirement for regular external auditing.

Removal of some currencies from calculations where there is insufficient data to establish a realistic rate.

Submitters' individual rates will be published differently. This should avoid submissions being manipulated in order to overinflate apparent creditworthiness.

Legal documents should include robust contingency procedures to reduce reliance on LIBOR submissions.

It is hoped that the review will 'restore the faith of financial markets in LIBOR'. Once the government has considered and responded to Mr Wheatley's review, any resulting legislation will be included in the Financial Services Bill that is currently being considered by the House of Lords.