British Bankers Association (BBA) has decided to change the system of setting the London Interbank Offered Rate (LIBOR) in the global financial system to avoid manipulations, following a major LIBOR scandal last year. The interest rates announced by the member banks in the LIBOR committee, which are published every day, will be made public only once every three months to avoid any chance of manipulation, explained BBA.
Bankers will not know the interest rates announced by competing banks and will no longer be able to adjust interest rates accordingly. Interest rates will continue to be set daily. Investigations of regulators have revealed how the banks influenced interest banks, for their own benefit, or to make it appear that they are more robust than they are.
With these changes, which will come into effect in July, BBA will take into account one of the main recommendations made in a report by Martin Wheatley, currently managing director of the Consumer and Markets Business Unit of the Financial Services Authority in the UK.
“Restoring confidence in Libor as a reliable benchmark is an absolute priority for the BBA. We have been working hard with regulatory authorities and the Government to put in place the necessary reforms ahead of it transferring to a new owner,” said Anthony Browne, BBA chief executive officer, in the statement
Notification of changes took place while a source close to the situation said that authorities in Brussels want the LIBOR supervision to be transferred to the European Securities and Markets Authority (ESMA) in Paris, a proposal rejected in London. Global regulators are seeking alternatives to LIBOR, after authorities in the United States and United Kingdom have found that some major banks conspired to manipulate interest rates.
Royal Bank of Scotland and Barclays in the United Kingdom and UBS in Switzerland were fined a combined $2.5 billion for such irregularities and the investigation is still ongoing for more than 10 financial institutions.
European Community proposals will provide regulators the power to force banks to participate in committees that will provide information needed to establish the important indicators of interest rates, according to the draft. The Commission wants to establish good governance rules to ensure a higher level of transparency, in order to eliminate possible conflicts of interest.
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