* Policy ideas on Libor reform due Aug. 10
* Government to decide on legislation in autumn
* Review to include other benchmarks, such as commodities
By Huw Jones
LONDON, July 30 (Reuters) - Britain is seeking urgent reform of the key interest rate rigged by a number of banks, including Barclays, in a transatlantic scandal that is threatening to seriously damage London’s reputation as a financial centre.
The government on Monday set the terms for a swift review of Libor, to be carried out by regulator Martin Wheatley in time for recommendations to be included in a draft law making its way through parliament.
The Libor scandal has sparked a blame game among market watchdogs in the United States and Britain who are now calling for direct regulation of the benchmark that is currently compiled and overseen by the banking industry.
Wheatley, a top official at the Financial Services Authority, will look at how Libor, which reflects the price at which banks are willing to lend to each other, is constructed and the feasibility of using actual trades rather than offered rates.
The review will also look at governance, the potential for alternative rate-setting processes and how to move to a new regime, which some experts say could take time as many long-term contracts are pegged to Libor, the London interbank offered rate.
Sanctions for abuse of Libor and whether the rate, currently supervised by its sponsor, the British Bankers’ Association (BBA), should be formally and directly regulated under UK law, will also be examined.
“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 BBA, which had already begun a review in March of Libor setting, its second in four years, had no comment. The FSA and Bank of England are taking part in that BBA review and its findings could be passed on to Wheatley.
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 Aug. 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 European Union’s executive European Commission proposed last week making the rigging of market-set benchmarks illegal.
Other UK banks are also likely to be fined over Libor, following the $453 million penalty paid by Barclays, at a time when lenders are already being punished for mis-selling products to consumers and businesses.
UK lender Royal Bank of Scotland signalled 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 bank said it has been named as a defendant in U.S. private lawsuits linked to Libor and its Continental European counterpart Euribor.
Lloyds, one of Britain’s “big four” banks, said last week it has been subpoenaed as part of the Libor probes.
The review will also consider any provisional policy recommendations for other market benchmarks in financial markets, Wheatley said.
This would likely include benchmarks in the commodities markets such as for pricing Brent oil.
The move by Britain is the latest sign that banks will no longer be allowed to supervise Libor in future.
Bank of England Governor Mervyn King has said a global committee of central bankers he chairs will discuss Libor reform in September.
The European Commission warned last week the bloc could take over supervision of Euribor and would also be looking at other pricing benchmarks set by markets, such as oil, gold and cocoa.
Euribor is currently supervised by the European Banking Federation.
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 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.