Tuesday, January 1, 2013

UK Floats Legislation to Tame LIBOR

The government has acted swiftly and is implementing Martin Wheatley’s recommendations as quickly as possible, introducing legislation that brings Libor within the scope of regulation and creating new criminal sanctions for attempted manipulation of Libor. Recent events have illustrated that Libor might not be the only benchmark subject to attempted manipulation. We are consulting on whether further benchmarks should be brought with the scope of regulation. -- Financial Secretary to the Treasury Greg Clark

Endorsing the recommendations of the Wheatley Report, the UK Government has issued draft legislation intended to reform the London Interbank Offered Rate (LIBOR) by bringing it within the scope of UK regulators and making the manipulation of LIBOR a criminal offense. The Wheatley Report published August 10, 2012 by a team commissioned by the UK Treasury's Chancellor of the Exchequer and headed by Martin Wheatley, Managing Director of the UK Financial Services Authority and Chief Executive Designate of the Financial Conduct Authority (one of the successor organizations to the FSA), examined the structure and governance of LIBOR and the corresponding criminal sanctions regime. The report developed a number of sweeping recommendations which, if implemented, would radically change the way LIBOR is developed and overseen.

The draft legislation adopts all of the Wheatley report recommendations, including:

  1. Criminal sanctions for manipulating LIBOR
  2. Orderly transfer of responsibility for LIBOR to a new administrator, selected by an independent committee.
  3. Scrutiny by the new administrator of submissions and regularly review the effectiveness of LIBOR.
  4. A new code of conduct for submitters, approved by the Financial Conduct Authority.
  5. Reduction in the number of currencies and maturities for which submissions are made to more sharply focus on the most meaningful benchmarks.

The legislation is drafted to give the Financial Conduct Authority sufficient authority to oversee the conduct of LIBOR related activities, allowing the agency not only to investigate, but also to write rules governing the control systems, procedures, and conduct of firms involved in the rate-setting process.