This week, various news outlets reported on a new United Kingdom regulator that will take over supervision of Libor as of April 1, 2013. According to Business Standard, “[r]egulatory oversight of Libor rates will be handed to the UK Financial Conduct Authority on April 1, under rules meant to restore credibility to the tainted benchmark.” Additionally, the UK Financial Services Authority (FSA) announced the new rules designed to overhaul Libor. The Brisbane Times reported that, “[i]n addition to requiring Libor’s new administrator to corroborate data submitted by banks, the banks themselves will have to tighten their internal controls concerning Libor information.”
The FSA released its Policy Statement 13/6 “The Regulation and Supervision of Benchmarks,” which addressed these new rules. The Policy Statement, available here, details the FSA’s consideration of various “consultations” including what is known as the “Wheatley Review of LIBOR.” As Banking Business Review reports,
On 2 July 2012, the Chancellor of the Exchequer commissioned Martin Wheatley, CEO designate of the Financial Conduct Authority (FCA), to undertake a review of the structure and governance of LIBOR and the corresponding criminal sanctions regime.
According to the Wheatley Review, a 10-point plan for comprehensive reform of LIBOR including those LIBOR activities should be brought within the scope of statutory regulation.
Subsequently, the UK government included provisions into the Financial Services Act 2012 to allow the regulation of activities in relation to benchmarks.
The Wheatley Review is available here. In an editorial piece, Bloomberg Businessweek opined that Wheatley’s reforms “go about as far as they can without changing the definition of Libor.” The editorial summaries the highlights of Wheatley’s reforms as:
- The BBA will be removed from the picture, and U.K. authorities will hold an open competition to find a new administrator. (Disclosure: Bloomberg LP, the parent of Bloomberg News, is a competitor of Thomson Reuters Corp., which conducts Libor surveys on behalf of the BBA. Bloomberg has proposed its own alternative to Libor.)
- Bankers involved in setting Libor will be subjected to regulatory oversight, and manipulation will become a criminal offense.
- The number of Libor maturities and currencies will be pared down to those in which borrowing actually occurs, a move intended to take some of the guesswork out of banks’ interest- rate estimates.
However, the editors of Bloomberg Businessweek felt that “Wheatley stopped short of one measure that would have greatly improved transparency: requiring banks to report actual borrowing transactions, against which the public could check the veracity of the estimates that banks submit.”