LONDON Dec 5 Britain's financial watchdog wants
more banks to help set Libor, saying firms that do not volunteer
to join panels that calculate the interest rate daily could be
The Financial Services Authority wants to make it harder to
rig Libor - the London interbank offered rate, a benchmark used
in contracts worth an estimated $500 trillion worldwide.
Barclays was fined 290 million pounds ($467
million) in June by British and U.S. regulators for manipulating
LIBOR. Peers such as RBS and UBS were expected
to settle similar charges in coming weeks.
The fines imposed on Barclays led to banks pulling out of
panels that set interest rates in places such as Hong Kong and
Singapore as they grew reluctant to expose themselves to
possible allegations of manipulation of reference rates that are
used relatively infrequently.
Probes by regulators in several countries prompted a review
by FSA managing director Martin Wheatley, which made
recommendations in September to reform how Libor was set,
governed and supervised.
At present, 11-18 banks contribute to setting Libor in each
of the five main currencies - Libor has 150 variants, depending
on currency and maturity.
The FSA said on Wednesday it wanted to have a minimum of 20
firms taking part in each currency and it would get powers to
force banks to participate.
It set out how those recommendations would be implemented
from March. The paper said the number of banks involved could be
increased to discourage attempts to manipulate Libor.
"In some cases, we think it would be beneficial to the rate
if firms considered voluntarily applying to submit to the Libor
benchmark," the FSA said.
"Existing submitters might also review whether to join
additional panels for any of the five currencies that are to be
retained ... in which they do not currently participate."
Putting forward criteria for deciding which banks would be
eligible to take part, the FSA said the top 30-40 institutions
should contribute to Libor.
"We would expect to consult the market again in the event
that we wish to enact the compulsion powers. We many not
consult, however, if we felt we had to use the power in an
emergency to introduce rules requiring submissions to maintain
the integrity of Libor," the FSA said.
The number of variants will be cut drastically by early 2013
to focus on the more heavily traded ones.
The FSA said the reforms will be finalised by March and will
come into effect at short notice.
Libor will be the only regulated benchmark in Britain at
first, meaning submitters must comply with new rules to avoid
abuses and conflicts of interest. Other benchmarks could be
The British Bankers' Association is being shorn of its role
as Libor administrator. The FSA said the BBA's replacement, now
being selected by an independent panel, must pay an initial
authorisation fee of 25,000 pounds ($40,000) to the regulator.
The new administrator would then pay an annual fee of
385,000 pounds from the second year on. The FSA estimated it
will cost the administrator 1.6 million pounds to get started
with ongoing costs of up to 1 million pounds a year.
A bank taking part in submitting quotes to Libor under the
new regime faces one-off costs of 1.6-2.5 million pounds, and
on-going costs of 163,000-545,000 pounds, the FSA said.
The watchdog said it was difficult to quantify the benefits
of the new rules in monetary terms but "given the global
importance of Libor we believe the benefits outweigh the costs".