Move to liberate Libor rate from the BBA

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BRITAIN is expected to propose that Libor, the interest rate at the centre of a rigging scandal, is anchored to real transactions and that an industry body is stripped of its supervisory role to restore trust in the benchmark.

Derivatives, banking and asset management industry sources say the Financial Services Authority has a tricky balancing act to win back confidence in the London Interbank Offered Rate.

Martin Wheatley, the FSA’s managing director who has warned banks to clean up their act, faces global calls for speedy reform of the Libor rate as well as pressure from cautious users who are resisting radical change.

Mr Wheatley is expected to recommend on Friday that the use of actual market trades rather than quotes to compile Libor and to formally end the role of the British Bankers’ Association (BBA) in overseeing it in favour of more formal regulation.

The BBA said yesterday that it would support any recommendation by Wheatley for a change of responsibility.

The Government is set to include some of Wheatley’s proposals in a financial law now being finalised in parliament.

The BBA took control of Libor in 1986 and now covers a suite of 150 rates in different currencies and maturities.