LIBOR changes will be postponed until May 2013 following consultation, says BBA

Under the new timetable, the BBA will stop calculating LIBOR for those currencies and time periods set to be dropped at the end of May 2013. It had originally proposed a staggered implementation for these changes, but has amended the timetable following a month-long consultation with market users.

Cutting the number of currencies and maturities covered by LIBOR was one of the recommendations made by Martin Wheatley in his Government-commissioned review of the rate-setting process. In his report, Wheatley said that "substantially" cutting the number of calculations would help to achieve "a sharper focus on the more heavily-used benchmarks".

The BBA is due to transfer responsibility for the rate to a new administrator in the near future, as recommended by the Wheatley review. The Government has appointed Baroness Hogg to lead a panel to identify an appropriate new administrator.

"We have said throughout this process that the absolute priority now for everyone is to ensure the provision of a reliable benchmark which has the confidence and support of all users," Anthony Browne, BBA chief executive, said. "We are issuing this feedback statement to allow LIBOR users the maximum amount of time to make contingency plans for these changes. We will be issuing a further, more detailed feedback statement in the New Year."

The BBA had previously proposed removing those currencies and maturities where the "underlying trade data is considered insufficient" by the end of March 2013. It also proposed dropping nine of the 15 time periods that the rate is currently published in from all currencies by the end of January.

According to a feedback statement (3-page / 40KB PDF), respondents to the BBA's consultation had raised a "general concern" that the proposed timescales for the changes were too fast. Certain respondents also claimed that the proposals would discontinue rates that are currently relied on for various purposes.

Although the majority of the proposed changes will ultimately proceed as planned, currencies and time periods scheduled to be dropped will continue to be published until May 2013. The BBA has also said that it will continue to publish two-month rates for those currencies that remain within the LIBOR-setting framework after this date. Overnight rates and rates for one, three, six and 12 months will also be published daily. LIBOR rates will continue to be published in the Euro, Japanese yen, pound Sterling, Swiss franc and US dollar.

"The BBA fully appreciates that the implementation of these proposals may be inconvenient for some users of LIBOR," the feedback statement said. "However, as noted in the Wheatley Review, there is a lack of regular transactions for some of the currencies and tenors for which LIBOR is calculated."

"While there are significant numbers of transactions in core currencies and tenors, trading volumes are thin for many others. LIBOR submissions for these currencies and maturities would be more difficult to support using transaction data. Retaining such fixings in the LIBOR framework cannot therefore be justified beyond the near term," the statement said.

The BBA also declined to recommend "alternative protocols" users of the dropped rates should instead use in their calculations. It said that as LIBOR was used for a "wide variety" of purposes", "market participants operating in these diverse areas" would be best placed to consider an alternative framework.

LIBOR is a daily reference rate based on the interest rates at which banks can borrow unsecured funds from other banks. It is widely used internationally as the pricing basis for some $550 trillion worth of financial instruments including interest rates and currency hedging instruments, and to set the interest rate for syndicated loans.

On 27 June Barclays announced that it was to pay total penalties worth £290 million to regulators in the UK and US for "misconduct" in relation to LIBOR submissions.

Last week the Serious Fraud Office (SFO) made three arrests in relation to its investigations of alleged manipulation of LIBOR. It is proceeding under existing fraud and false accounting laws, as there is not yet a specific criminal offence in relation to LIBOR.

Following Wheatley's report LIBOR-related activities including the administration of the rate as well as banks' own submissions are to be brought within the scope of statutory regulation. This will allow regulators to take direct action against firms for misconduct, including financial penalties and banning firms from carrying out other regulated activities. The draft Financial Services Bill, which is currently before Parliament, will also create a new criminal offence of making misleading statements in relation to benchmarks such as LIBOR, as well as amending the wording of existing offences, following Wheatley's recommendations.