LIBOR, the London Interbank Offered Rate, is a benchmark interest rate used to fix the cost of borrowing on loans and derivatives worldwide. LIBOR is currently calculated by asking a panel of banks to estimate the rate at which they believe they can borrow on the interbank market.

As reported in the Financial Times, the chief executive of the English Financial Conduct Authority (being the regulator leading the process of LIBOR reform), Mr Martin Wheatley, has stated that due to past attempts at LIBOR manipulation by banks under the existing survey-based rates system, the LIBOR benchmark interest rate is likely to be replaced by a dual-track system with survey based lending rates of panel banks running alongside transaction-linked indices as soon as 2014.

According to Mr Wheatley, this parallel system would provide continuity for holders of existing contracts that reference LIBOR while also paving the way for a new benchmark more closely tied to objective data to be applied for new contracts. Mr Wheatley has warned of the difficulty in completely replacing LIBOR benchmarks due to the fact that many LIBOR linked contracts last well into the future.

This proposal faces opposition from US regulators, namely Gary Gensler of the US Commodity Futures Trading Commission who wants a prompt switch to 'transaction based' rates and views the existing LIBOR system as ultimately unsustainable in the long term due to the decline in the levels of unsecured interbank lending. This has made rate estimates for notional interbank lending inaccurate and vulnerable to manipulation.