BBA unveils 3-month Libor embargo to avoid rigging repeat

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Banking industry body the British Bankers’ Association has unveiled changes to how the key Libor interest rate is determined to prevent last year’s rigging scandal from happening again.

Under the new system, the publication of banks’ individual submissions will be placed under embargo for three months. The move follows calls in the Wheatley Review into the scandal for an embargo to reduce the risk of “manipulation”.

Until now, Libor submissions of individual banks had been published daily alongside the final Libor rate. This was originally intended to promote transparency and public accountability for the accuracy of submissions but has been criticised for facilitating the manipulation of the rate and create incentives for contributors to place inappropriate submissions.

BBA chief executive Anthony Browne says: “Restoring confidence in Libor as a reliable benchmark is an absolute priority for the BBA and we have been working hard with regulatory authorities and the Government to put in place the necessary reforms ahead of it transferring to a new owner.

“We are enacting the reforms as set out by Martin Wheatley in his review of Libor and this is another important milestone in that process.”

The change to Libor, which is used to set the rate of trillions of dollars of financial contracts and is commonly used for benchmarking purposes, will come into force on 1 July after being reviewed by the Government.

Financial Conduct Authority chief executive Wheatley says: “I welcome this further step towards implementing the conclusions of the Wheatley Review.”

The Libor scandal broke in June 2012 when Barclays was fined a total of £290m by the Financial Services Authority, the US Department of Justice and the US Commodity Futures Trading Commission after admitting misconduct.

This was followed by fines totalling £940m for Swiss bank UBS and £390m for the The Royal Bank of Scotland. The BBA will also lose responsibility for setting Libor and is set to be replaced by either a data provider, such as Bloomberg or Reuters, or a regulated exchange.