Martin Wheatley, managing director of the FSA and head of an independent review into LIBOR set up by the Government (the "Wheatley Review"), has launched a Discussion Paper (the "Paper") setting out the initial proposals for reform of the current framework for setting and governing LIBOR.

The Paper, published by HM Treasury on 10 August, provides a preliminary analysis of the current LIBOR system and the initial thoughts and commentary from the Wheatley Review.

Reform of LIBOR

Over recent months, details of the manipulation of the current LIBOR system have come to light and a significant number of crucial weaknesses have been identified. One thing is clear; it is not possible to continue with the LIBOR framework in its current form. The Wheatley Review seeks to restore credibility and trust to the system, which has become an integral part of our financial system.

The Paper suggests a number of ways to strengthen the current LIBOR framework, including improvements to the methods used to calculate LIBOR and enhancing the oversight of the LIBOR framework for greater transparency. It also considers alternatives to LIBOR and new benchmarks that may be developed to determine an interest rate.

Next steps

Respondents have until 7 September to comment on the suggestions in the Paper. The Wheatley Review aims to present the feedback it receives to the Chancellor of the Exchequer before the end of September 2012. This will allow sufficient time for any necessary changes to be made to the Financial Services Bill 2012-13.