U.K. details plans to revamp LIBOR procedures

The U.K. Financial Services Authority on Friday laid out plans to determine LIBOR by cutting the number of rates published, expanding the pool of participating banks and imposing tougher oversight, including criminal penalties for financial misconduct.

According to “The Wheatley Review of LIBOR,” or the London interbank offered rate, the number of reference rates should be reduced to about 20 from the current 150 over time, partly because of inadequate trading data on certain currencies and maturities. Furthermore, reporting institutions should base their estimates on either actual transactions or borrowings in other instruments if actual data isn't available. Currently, authorities do not require that estimates be based on actual transactions when possible.

“Governance of LIBOR has completely failed,” Martin Wheatley, managing director for the FSA, said in a speech Friday about the report.

Furthermore, the number of banks that submit rate estimates would increase, and the regulating authorities should have the power to require banks to participate if needed.

Also proposed as part of the revamp, the British Bankers' Association would be replaced by a new administrative organization. The BBA has been under heavy scrutiny particularly when it surfaced in June that Barclays agreed to pay $451 million in fines for attempting to manipulate LIBOR.

Lady Sarah Hogg, chairwoman of the government's Financial Reporting Council, will lead the process to find a replacement administrator for LIBOR.