Wheatley concerned over $300trn tied up in Libor
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In focus: Parliament Libor Inquiry
Mr Wheatley was commissioned by the Treasury to review the Libor system after the FSA fined Barclays £290m in June for attempting to manipulate the figure.
He said retaining Libor unchanged in its current state is not a viable option, given the scale of identified weaknesses and the loss of credibility that it has suffered.
A code of conduct could be introduced to establish clear guidelines relating to policies and procedures concerning Libor submissions, he said.
According to the document, estimates suggest that there are at least $300 trillion of existing transactions that reference Libor.
It said: “The scale and scope of existing contracts, and the non-standardised documentation for those contracts, means that any transition to an alternative rate would be difficult to achieve.”
Launching a discussion paper on reform of Libor, Mr Wheatley said: “It is clear that regardless of the outcome of ongoing international investigations, trust in a vital part of the financial system has been badly damaged and timely action is needed to repair it.
“Today, we are taking the first step in this process by launching the Wheatley Review discussion paper, which seeks responses from a wide range of market experts and international stakeholders.
“This review aims to ensure that LIBOR is reformed in whichever way fully restores credibility and trust.”
Suggestions outlined in the document include scrapping Libor and replacing it with a rate based on actual trades that is overseen by an independent body, rather than the British Bankers’ Association.
Announcing the review in July, the Treasury said Mr Wheatley should determine the scope of sanctions for abusing Libor and whether it should be extended to other rate-setting processes.
Mr Wheatley will recommend policies on the appropriate governance and structure of Libor and any alternative rate-setting practices.
The review will also consider whether similar measures are required for other existing benchmarks.
The FSA is separately investigating other financial institutions suspected of being involved in rate manipulation, while MPs and Lords are conducting a review into banking standards.
Stakeholders will have four weeks to submit written responses to the review.