The Treasury has admitted that the timescale it has set for FCA chief executive designate Martin Wheatley to conduct his review of how the Libor rate is set and governed will be “challenging”.
Announced by chancellor George Osborne earlier this month, the review will look at how the rate-setting process could be improved, whether submitting borrowing rates for inclusion in the rate should be made a regulated activity and whether the current sanctions for abuse of the rate are adequate. It will consider whether banks should submit actual borrowing costs rather than estimates, which are used at the moment.
A consultation paper will be published on 10 August and responses will be accepted for four weeks. The review will then have to report by the end of September and its findings will be considered for inclusion in the Financial Services Bill.
The terms of reference, published today, say: “In recognition of the challenging timetable, Martin Wheatley and the review team will be seeking to engage directly with stakeholders during the consultation period.”
Wheatley says: “It is clear that urgent reform of the Libor compilation process is required. Such reform may include amendments to the technical definitions used for Libor, the associated governance framework and the role of official regulation. The review will also consider whether similar measures are required for other existing benchmarks.”
The tight timetable could attract criticism from the likes of the Treasury select committee and Labour. Both have raised concerns about the speed with which the Government is trying to push the Financial Services Bill through Parliament.
Today, the Serious Fraud Office has confirmed existing criminal offences are capable of covering conduct in relation to the manipulation of Libor and other interest rates.
Currently, a panel of banks submit estimates of their borrowing costs for different currencies over different time periods, the four highest and the four lowest in each category are then removed. The remaining estimates are then averaged to create a rate for each category. The rate is used to cost trillions of pounds worth of loans and swaps and is currently compiled by Thompson Reuters for the British Bankers’ Association. It is currently not a regulated activity.
Wheatley’s review is separate to the Parliamentary Commission on Banking Standards being led by TSC chair Andrew Tyrie. His inquiry is looking at professional standards in the industry and will report by December 16. Its findings will be considered for inclusions in the Bank Reform Bill which will introduce reforms suggested by the Independent Commission on Banking.