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LIBOR reforms – an update

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11 January 2013

Since mid-2012, various proposals have been published in relation to what has been described as a “complete overhaul” of the regulation and supervision of LIBOR and its European counterpart, EURIBOR.

The Wheatley Review

Following the well-publicised issues relating to the setting of LIBOR, in July 2012, HM Treasury commissioned Martin Wheatley (Managing Director of the Financial Services Authority (FSA) and CEO Designate of the Financial Conduct Authority (FCA)) to conduct a review into the setting of LIBOR (the Wheatley Review) and the criminal sanctions regime. The Wheatley Review produced a ten-point plan for the comprehensive reform of LIBOR regulation, which included the following recommendations:

  • a new independent body should take over the responsibility for the administration of LIBOR and produce a Code of Practice to govern the LIBOR submission process;
  • the submission and administration of LIBOR, as well as key individuals responsible for this, should be regulated by the FSA. The FSA should be given the power to make rules in relation to the submission of LIBOR, with reference to the Code of Practice produced by the new independent body;
  • the FSA should be given statutory powers which allow it to bring criminal prosecutions for the manipulation of LIBOR; and
  • LIBOR submissions should, so far as possible, be supported by transaction data.

These recommendations are designed to enhance the FSA’s ability to implement rules that help ensure the integrity of the LIBOR submissions process, as well as allowing the FSA to supervise and, if appropriate, take enforcement action against firms and individuals who are involved in the LIBOR submission process.

The Financial Services Act 2012

HM Treasury confirmed that it has accepted the recommendations made by the Wheatley Review in full. In November 2012, HM Treasury also published draft secondary legislation (in the form of amendments to the Financial Services Bill which received Royal Assent on 19 December 2012) to reflect these recommendations. Most notably, the Financial Services Act 2012 will make the following changes in relation to the regulation of LIBOR:

The criminal offence of making misleading statements (s397 of the Financial Services and Markets Act 2000 (FSMA)) will be replaced with a suite of three criminal offences (Part 6A of the Financial Services Act 2012). The first two of these offences will largely replicate the existing offences in ss397(2) and (3) FSMA. However, the third offence is new and relates to the making of false or misleading statements, or the creation of false or misleading impressions in relation to LIBOR.

At present, the Financial Services Act 2012 limits the definitions of “regulated benchmarks” (for the purposes of what constitutes a regulated activity in the new Regulated Activities Order) and “relevant benchmarks” (for the purposes of the new suite of criminal offences in the new Misleading Statements and Impressions Order) to LIBOR. However, the legislation leaves it open for the Government to incorporate additional benchmarks in the future.

In the event that the Government does decide to incorporate additional benchmarks in the future, the definition of “benchmark” for the purpose of determining whether an activity is a regulated one is quite widely drawn (s22(6) FSMA, as amended by the Financial Services Act 2012). It includes an index, rate or price that is used for one or more of a range of purposes (such as to measure the performance of investments) with no requirement that this purpose be its main or dominant purpose. However, this broad definition of “benchmark” is to some extent curtailed by the requirement that the index, rate or price in question must be made publicly available which means that non-public benchmarks, such as those that are shared among financial services entities, may be excluded.

FSA consultation

In December 2012, the FSA launched a consultation which invites feedback on the FSA’s proposed approach to regulating the future submission and administration of LIBOR.

The FCA intends to introduce rules and guidance in relation to the submission and administration of LIBOR in a new section of the Market Conduct section of its Handbook – “General Guidance on Benchmark Submission and Administration” (BENCH). These rules and guidance will cover the internal systems, controls and codes of practice of entities responsible for administering and submitting LIBOR.

In relation to approved persons, the FCA is proposing to create two new SIF Controlled Functions for individuals who administer LIBOR (CF50 – benchmark administration function) and individuals who submit LIBOR (CF40 – benchmark submission function). It is also envisaged that, in addition to the new SIF Controlled Functions, those people who are responsible for administering or submitting LIBOR may also fall within the following SIF controlled functions: Director (CF1), Non-Executive Director (CF2) and Chief Executive (CF3).


These proposed new powers to take action against wrongdoers in relation to LIBOR will be in addition to the powers proposed in the new European market abuse regime.

In July 2012, the European Commission announced various amendments to its proposals for a Regulation and Directive on insider dealing and market manipulation which are intended to clearly prohibit the manipulation of benchmark rates such as LIBOR and EURIBOR and make such manipulation a criminal offence. However, the UK has not at present opted in to these additional rules.

If you require further details please contact Arnondo Chakrabarti, or Sarah Hitchins,

Further information

This article is part of the Allen & Overy LLP Legal & Regulatory Risk Note, a quarterly risk management briefing putting the key issues at the top of the agenda.  For more information please contact Sarah Garvey, or tel +44 (0)20 3088 3710.