LONDON Britain's government set out the terms for a revamp of a key interest rate rigged by a number of banks, including Barclays (BARC.L), saying on Monday that urgent reform is required.
The review will be conducted by Martin Wheatley, a top official at the Financial Services Authority regulator.
It will look at how Libor is constructed, the feasibility of using actual trades, governance, the potential for alternative rate-setting processes and how to move to a new regime.
Sanctions for abuse of Libor and whether the rate, currently supervised by its sponsor, the British Bankers' Association, should be formally and directly regulated under UK law.
"The benchmark rate is used globally for trillions of dollars worth of financial contracts. Therefore, it is clear that urgent reform of the Libor compilation process is required," Wheatley said in a statement published by the Treasury.
"The review will also consider whether similar measures are required for other existing benchmarks," Wheatley said.
Wheatley met members of the panel of banks that feed their date into the current rate-setting process on Monday.
He will publish a discussion paper on August 10 to kick off a four-week public consultation with final conclusions by the end of September.
Britain's Finance Minister George Osborne will then consider how Wheatley's recommendations can be incorporated into a financial services draft law already making its way through parliament.
The FSA and U.S. authorities fined Barclays a record $453 million for trying to influence Libor, the London interbank offered rate, which is the rate that banks are willing to lend to each other.
UK lender Royal Bank of Scotland (RBS.L) signaled on Sunday in a Guardian newspaper interview that it too faced a fine for its role in the rate-rigging scandal as authorities across the world probe about 20 banks.
HSBC (HSBA.L) bank said it has been named as a defendant in U.S. private lawsuits linked to Libor and its Continental European counterpart Euribor.
The FSA is being scrapped next year and replaced with two new regulators, one at the Bank of England, the other a standalone Financial Conduct Authority which Wheatley will head.
Thomson Reuters Corp (TRI.TO) is the British Bankers' Association's official agent for the daily calculation and publishing of Libor. The company has said it continues to support the BBA in calculating and distributing Libor rates.
(Reporting by Huw Jones; Editing by Erica Billingham)