Exclusive: BBA Votes To Give Up Libor Role

The council of the British Bankers' Association (BBA) has formally voted to give up its responsibility for setting the interbank borrowing rate Libor following the fixing scandal that engulfed the industry three months ago.

I have learned that at a BBA council meeting on September 13, a motion was passed for the organisation to relinquish its role in the Libor administration process.

The development, while not wholly unexpected, will effectively force regulators to devise a new structure for overseeing the benchmark rate, which has been sponsored by the BBA since the 1980s.

The BBA had only hinted at such a decision since the rate-rigging storm blew up at the end of June, saying at the time: "The current Libor review, with which our authorities are fully engaged, has been under way since March this year and is considering all aspects including the setting process.

"As part of this review, we will now be asking the authorities to consider in what manner the Libor-setting mechanism should be regulated in the future."

Details of the BBA council vote have emerged just days before Martin Wheatley, managing director of the Financial Services Authority (FSA) and chief executive-designate of the Financial Conduct Authority, recommends reforms aimed at restoring the credibility of Libor.

Mr Wheatley is expected to say in a speech to City financiers on Friday that the rate-setting process should have formal regulatory oversight, potentially by a body such as the Financial Stability Board.

The BBA council, which is the banking lobbying group's governing body, comprises representatives of 25 of the world's largest banks, including all of the major UK high street lenders.

The BBA has said little in public about Mr Wheatley's inquiry, citing legal restrictions, but issued this statement last month: "The absolute priority of everyone involved in this process is to ensure the provision of a reliable benchmark which has the confidence and support of all users, contributors and global regulators."

In their submissions to Mr Wheatley's inquiry, which was established by David Cameron and George Osborne following Barclays' £290m fine in June, many of the large British banks endorsed an overhaul of the Libor-setting regime.

I am told that HSBC and others have suggested a break-up of the existing system along geographical lines so that sterling Libor rates would be set in London, US-dollar Libor in New York, and so on.

The Libor benchmark is critical to trillions of dollars in derivatives contracts which affect mortgage and other consumer interest rates.

Approximately a dozen other global banks remain under investigation by regulators around the world for their roles in the apparent manipulation of Libor.

Many of them, including Deutsche Bank and Lloyds Banking Group, could face significant fines, with Autonomous, a leading research firm, forecasting industry-wide losses of up to £27bn.

In a speech on Tuesday, Stephen Hester, chief executive of Royal Bank of Scotland, repeated his assertion that the taxpayer-backed bank was anticipating a heavy penalty for past misdemeanours, including Libor-fixing.

A report by the Treasury Select Committee last month urged an overhaul of the penalties available to regulators for rate manipulation.

"The committee urges the Wheatley review to consider the case for amending the present law by widening the meaning of market abuse to include the manipulation, or attempted manipulation, of the Libor rate and other survey rates.

"They should also consider the case for widening the definition of the criminal offence in section 397 of (the Financial Services and Markets Act) to include a course of conduct which involves the intention or reckless manipulation of Libor and other survey rates."

The BBA declined to comment on the September 13 council vote.