FSA announces final plans for Libor reform

Administrator forced to manage conflicts of interest

Martin Wheatley

The UK's Financial Services Authority (FSA) has finalised new rules for overseeing the calculation of the Libor benchmark in the wake of the Libor-rigging scandal last year.

Following a consultation paper published in December of last year, the FSA has now confirmed its final regulations for the financial benchmark. The FSA announced it would directly regulate the new Libor administrator – still to be chosen – which will replace the British Bankers' Association (BBA) in administering the Libor calculation.

After consultation with industry, the FSA added a requirement for the administrator to have appropriate policies to manage internal conflicts of interest. At least two of the members of the oversight committee must be independent non-executive directors of the administrator, who are approved by the Financial Conduct Authority (FCA).

A further change relates to the validation of submissions by the benchmark administrator. Initially, the FSA required the administrator to monitor, validate and survey submissions received. But industry members complained that the administrator would not have sufficient resources to validate all submissions, because of the daily volume of submissions, as well as the use of transaction data and expert judgement. As such, it has removed the word ‘validation' from its original requirement.

The FSA also announced a reduction in annual fees to firms to cover the cost of supervision. The initial proposed fee was of £385,000. This has now been reduced to £175,000, reflecting lower projected costs of supervision, although this figure will be kept under review.

"Confidence and trust are critical to financial markets," said Martin Wheatley, chief executive-designate of the FCA. "That trust has been eroded by the Libor scandal and the recent enforcement action against several banks. These new rules today should help restore that faith and bring integrity back to Libor."

RBS, Barclays and UBS have all been hit with fines for Libor rigging. Several other banks are also believed to be under investigation.