Libor system to have ‘complete overhaul’

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Unscrupulous bankers will face criminal prosecution under far-reaching reforms designed to prevent a repeat of this summer’s interbank rate-fixing scandal.

In a speech today, Financial Services Authority (FSA) managing director Martin Wheatley reveals a 10-point plan to overhaul the Libor system and stamp out the “shocking behaviour” that led to systemic rate manipulation at the height of the financial crisis.

The process needs to be regulated by the FSA, with those that submit rates formally approved by the City watchdog and bankers who break the law subject to criminal sanctions, he said.

Accusing the British Bankers’ Association (BBA) of having “clearly failed” in overseeing Libor, Mr Wheatley is to say the BBA would see its responsibility for managing the process taken away. It is inviting other groups to apply to take over the role overseeing Libor and wants the new managing body to draw up a code of conduct and carry out regular audits.

The Chancellor tasked Mr Wheatley with reviewing the Libor process in July following Barclays’ £290 million fine for rate-rigging.

Mr Wheatley will say: “The system is broken and needs a complete overhaul.” He adds: “The disturbing events we have uncovered in the manipulation of Libor have severely damaged our confidence and our trust.”

The Treasury gave its initial backing to the review’s recommendations and said it was clear self-regulation of the system had failed.