Reforming the way interest rates are set for loans between banks (known as LIBOR)
Following the findings by various authorities in regard to the attempted manipulation of the London Inter-Bank Offered Rate (LIBOR), the Chancellor of the Exchequer commissioned Martin Wheatley, Chief Executive of the Financial Conduct Authority, to carry out a review of LIBOR.
The review looked at the structure and governance of LIBOR, and in September 2012 it published a report with recommendations on how the system should be reformed. We fully endorsed every one of the Wheatley Review’s recommendations and urged all institutions involved in the process of setting LIBOR to implement them.
In particular we introduced amendments to the Financial Services Act to make the manipulation of LIBOR a criminal offence and to bring LIBOR within the scope of regulation, so that financial regulators can oversee the way it operates. The new rules took effect from April 2013.
The Wheatley Review recommended that a new LIBOR administrator should be found. The Hogg Tendering Advisory Committee for LIBOR, chaired by Baroness Hogg managed the tendering process to find the new administrator. On 9 July 2013, the Hogg Tendering Advisory Committee for LIBOR announced that the British Bankers’ Association (BBA) accepted its recommendation that NYSE Euronext (renamed ICE Benchmark Administration after an acquisition by the IntercontinentalExchange (ICE) Group in November 2013), should be the new LIBOR administrator.
We are also working in the EU on the reform of benchmarks more broadly (including LIBOR and the Euro Interbank Offered Rate (EURIBOR)), to restore confidence in indices used by the market.
Since June 2012, HMT has received LIBOR fines from the Financial Conduct Authority (FCA). The Chancellor chose to use the fines in support of good causes. To date, the FCA has imposed total fines in excess of £450m relating to its investigations of LIBOR manipulation. This policy reflects that those who have paid fines in our financial sector because they demonstrated the very worst of British values are paying to support those in our Armed Forces and emergency services who demonstrate the very best of British values.
We are working with other government departments and charities to ensure that all LIBOR fines received to date will be committed within the life of this Parliament.