Libor rate-fixing scandal - 'We have been misled'

Britain's banks await the system reforms by the Financial Services Authority. Photo: Fiona Hanson/PA Archive

There is no doubt whatsoever that the old system of setting rates at which banks lend to each other, the Libor, was totally and utterly discredited by the scandal at Barclays that forced Bob Diamond's exit.

The City regulator, Martin Wheatley, will later make that plain, condemning what happened in strong terms concluding, "we have been misled". He describes "systemic" and "shocking" behaviour by traders who colluded to fix the rates that influenced millions of interest rates for credit cards, loans, mortgages and other financial deals, in turn affecting millions of consumers.

Yet despite the shaming of the former system, which is still likely to result in millions of pounds of fines for other banks, including RBS, Wheatley is not proposing scrapping it altogether. Instead he is proposing big changes which he hopes can restore the trust and integrity of the index.

Former Barclays boss Bob Diamond was a casualty of the Libor rate-fixing scandal. Credit: PA Wire

The Financial Services Authority, soon to be reformed itself into the Financial Conduct Authority, will oversee the process, and will have to approve those involved in setting it. Traders involved will in a sense have to be vetted by the regulators - that is quite a change. And he wants the FSA to be given a new power to prosecute anyone who is caught rate rigging.

The British Banking Association, which used to oversee the setting of the rate, will no longer have anything to do with it. Instead outside organisations are being offered the chance to run the system, with a bidding process being started this week. A new code of conduct for firms who are involved in setting rates is also to be intoduced, with a new reponsibility on them to be much more transparent and much more regularly audited and checked.

These are certainly big changes to the system which many believe was far too cosy, far too opaque and far too easy to manipulate. But it is worth noting that Wheatley is not recommending chucking the whole thing out and starting again. After such enormous controversy, which still has some way to run, some may question whether these changes go far enough.