On the first anniversary of the Libor manipulation scandal, the British Bankers' Association (BBA) announced on June 12 (local time) that it will implement reforms to Libor to restore public confidence in the benchmark.
Simply put, Libor serves as the fundamental pricing index for $500 trillion in global financial contracts, ranging from complex derivatives to standard residential mortgages. Consequently, when the scandal involving Barclays' alleged manipulation of Libor broke in June last year, it caused a massive uproar in the market.
Citing recommendations from the Wheatley Review, the BBA has decided to take two measures: first, effective July 1 of this year, banks will be prohibited from publishing Libor quotes for tenors of three months or less; second, effective July 31 of this year, the publication of one-week and one-month Euro Libor will be discontinued.
The BBA stated that Libor administrators will still have access to real-time quotes submitted by banks for the purpose of calculating interest rates and conducting oversight. The Financial Conduct Authority (FCA) will also have access to this information for regulatory purposes.
The BBA added that bank quotes will be published after a three-month delay, and the daily publication of the final Libor rates will remain unaffected.
Notably, the head of the BBA stated that they have been working closely with regulators and the government to implement necessary reforms before transitioning the administration of Libor.
Recent media reports indicate that the European Union is proposing to bring the Libor pricing process under the supervision of the European Securities and Markets Authority (ESMA) based in Paris.
