| LONDON, June 26
LONDON, June 26 The head of the UK's Financial
Conduct Authority and co-chair of a G20 review into Libor reform
has counselled against rushing into changing how the widely used
interest rate benchmark is set, saying on Wednesday that
regulators need to be realistic.
Giving the keynote address at the International Derivatives
Expo in London, Martin Wheatley said Libor, the London Interbank
Offered Rate, needed to be overhauled but there remain
limitations on how far and how quickly reform can go.
"We'd like to come up with the perfect solution. We'd like
to come up with something that is based on a deep and liquid
market, that is based on genuine observable transactions that
are themselves regulated, but we've also got to be realistic,"
The main priority for regulators was to restore trust in the
process of setting the benchmark which would be a model for
setting other reference prices in financial markets, he said.
"What we will do is make sure that we have a set of
principles that benchmarks should operate to and have thought
through the contingency plans if we get to a point when
particular benchmarks don't have the viability and can't move
Any more profound change would raise more complex financial
questions that regulators do not yet have the answer for, he
Libor is the benchmark against which over $300 trillion
worth of securities, including mortgages, student loans and
swaps, are priced.
But U.S. and UK regulators found traders tried to rig Libor
in a scandal that sparked public and political outrage and has
to date seen regulators fine three banks a total of $2.6
Wheatley was on Tuesday named co-chair of a Financial
Stability Board task force to look at reform of Libor. The FSB,
set up by the G20, will report back next year on whether the
benchmark should be changed and over what period.
His recent comments conflict with the view of the U.S.
Commodity and Futures Trading Commission, whose chairman has
said Libor should be scrapped and replaced with a reference rate
based on actual market transactions.
That approach is more in line with what sources familiar
with the matter said banks and the European Central Bank are
considering for Euribor, the Euro Interbank Offered Rate.
A group of 60 of the world's top banks will discuss a
benchmark based partly on bank estimates on the price of
borrowing as well as actual market rates when they meet with top
ECB officials in Brussels early next month, the sources said.
Wheatley said the FCA and international regulators have
already started work to review Libor, but it would take time to
settle on an alternative rate-setting system.
"There are still questions that global regulators and market
participants need to answer about benchmarks more broadly ... We
don't have a clear route map as to how you move forward," he
Thomson Reuters continues to support the calculation and
distribution of Libor on behalf of the British Bankers
Association while the British government conducts its tender for
a new administrator and also supports the calculation and
distribution of Euribor on behalf of the European Banking