The governor of the Bank of England, Sir Mervyn King, has come out in support of the reforms to the Libor interbank lending rate announced today.
Sir Mervyn said he hopes that the reforms announced today will be implemented as soon as possible.
“The Bank very much welcomes the Wheatley Review’s proposals to improve the functioning, governance and regulation of Libor and would want these to be implemented as soon as possible," he said.
The UK’s most powerful regulator has said that Libor, the interbank lending rate is “broken and needs a complete overhaul.”
Martin Wheatley, the head of the Financial Services Authority (FSA) has announced major reforms to the way Libor is set and managed and has recommended that the current system can be “fixed” and made fit for purpose despite the way it has been rigged in the past.
Mr Wheatley will make a speech at Mansion House today as a report was published on the Libor scandal and the way forward. He will outline how the Libor system will be amended so that there is a reduction in rates, a new administrator and stricter regulation.
In his speech, Mr Wheatley will say: “The disturbing events we have uncovered in the manipulation of Libor have severely damaged our confidence and our trust – it has torn the very fabric that our financial system is built on.”
Thi smorning he told the BBC's Today radio programme that: “Society has lost confidence in banks, in finance, in the whole system and we need to restore that. Society wants the people who commit these sorts of crimes to pay the price and if that includes jail for the most extreme fraud in the system then that’s what should happen.”
He recommended that responsibility for running Libor is taken away from the British Bankers Association (BBA) and given to the newly-formed Financial Conduct Authority, which Mr Wheatley will be in charge of when it opens next year.
Earlier this week, the BBA said that “If Mr Wheatley's recommendations include a change of responsibility for LIBOR, the BBA will support that."
The BBA has come under fire for how it managed the operation of Libor and today in a statement it said: “The BBA has strongly stated the need for greater regulatory oversight of LIBOR, and tougher sanctions for those who try to manipulate it.
"The absolute priority now for everyone is to ensure the provision of a reliable benchmark which has the confidence and support of all users, contributors and global regulators, and we will work closely with the Government and regulatory bodies to ensure this."
Libor is used as the benchmark for financial transactions across the globe from loans to mortgages.
Under plans for the new system aimed at preventing further manipulation, banks will have to provide “relevant trade data” to prove that the rates banks submit are accurately linked to what their actual borrowing costs would be.
Existing bankers who submit data for the Libor process will now have to be approved by the regulator and traders will be warned that they face “criminal sanctions” including jail if they are found guilty of attempting to manipulate the Libor rate in the future.
The Chancellor, George Osborne commissioned the report after public and political outrage that followed Barclays being found guilty of Libor fixing and receiving a £290 million fine from both UK and US regulators. More than a dozen other global banks are being investigated over similar claims.