UPDATE 1-UK watchdog to publish internal Libor probe soon
* FSA to publish internal Libor report before April
* CFTC chairman says cannot guarantee Libor is clean
By Huw Jones
LONDON, Feb 21 (Reuters) - Britain's Financial Services Authority (FSA) will publish its internal review into when it first knew about banks rigging the Libor benchmark within weeks, before the watchdog is scrapped.
The UK watchdog told parliament's Treasury Select Committee in a written submission released to the media that the review was being conducted by its internal audit division.
The FSA was responding to the committee's report last year on the Libor scandal. Two UK banks, Barclays and Royal Bank of Scotland have been fined for manipulating the London Interbank Offered Rate, used as a reference rate in transactions from home loans to credit cards.
Members of the committee were concerned that the watchdog was two years behind U.S. regulatory authorities in starting formal investigations. The FSA said in its submission that it had worked jointly with the U.S. authorities since 2008.
The committee wants the FSA's internal probe published.
"The Treasury Committee will consider the FSA's review into its own awareness of inappropriate Libor submissions when it is finalised," the committee's chairman Andrew Tyrie said in a statement on Thursday.
"Some of the evidence we hear suggests early warning signs may have gone unheeded," Tyrie said.
An FSA spokesman said the review is expected to be published within the next two to three weeks.
The committee has been pressing the FSA to give greater encouragement to whistleblowers from banks to report wrongdoing.
"We are currently preparing a note on incentivising whistleblowing without moral hazard," the FSA said in its submission. FSA head of enforcement Tracey McDermott has already told parliament that she does not favour paying whistleblowers.
The FSA will be scrapped at the end of March and its powers divided between the Bank of England and a new standalone Financial Conduct Authority as part of a post-crisis shake-up.
Gary Gensler, chairman of the Commodity Futures Trading Commission, one of the regulators that imposed fines on Barclays and RBS, said that it has worked with the FSA for four years and that it was a "terrific partner on these enforcement cases".
He reiterated his wish to see Libor - which is used to price some U.S. home loans - based on actual transactions rather than "something that doesn't exist".
"The real core issue is there may be no real market here, no reference rates referred to. In fact, like estate agents, they are making it up in some way," Gensler said in a BBC interview, adding that he could not guarantee that the Libor market was clean.
FSA managing director Martin Wheatley, who is writing a joint report with Gensler on future reform of Libor at the global level, has said that it is not possible to make an immediate shift to basing Libor on real transactions.
Thomson Reuters, parent company of Reuters, has been calculating and distributing Libor rates for Libor's sponsor, the British Bankers' Association, since 2005.
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