The Future Of LIBOR - The Final Report From The Wheatley Review

On July 2, 2012, the Chancellor of the Exchequer, Rt. Hon. George Osborne MP, commissioned Martin Wheatley, Managing Director of the U.K. Financial Services Authority (the "FSA") and Chief Executive Designate of the Financial Conduct Authority (one of the successors to the FSA), to undertake a review (the "Wheatley Review") of the structure and governance of LIBOR and the corresponding criminal sanctions regime. On August 10, 2012, Wheatley issued an Initial Discussion Paper setting out the direction of his initial thinking on the necessary reforms and requesting responses to a number of consultation questions by September 7, 2012. On September 28, 2012, Mr. Wheatley and his review team issued their Final Report setting out their recommendations regarding the reformation of LIBOR. The Wheatley Review recommendations will be considered for inclusion in the Financial Services Bill which is currently being considered by the House of Lords.

1. Preservation of LIBOR is Recommended.

   The Wheatley Review concludes that there is a clear case in favor of comprehensively reforming LIBOR, rather than replacing the benchmark. Noting that it is estimated that contracts with an outstanding value of at least $300 trillion reference LIBOR, the Wheatley Review determined that a move to replace LIBOR could only be justified by clear evidence that the benchmark is severely damaged, and that a transition to a new, suitable benchmark or benchmarks could be quickly managed to ensure limited disruption to financial markets. The Wheatley Review noted that there has been no noticeable decline in the use of LIBOR by market participants. Indeed a clear majority of market participants responding to the Wheatley Review's consultation argued for the continuation of a form of LIBOR, rather than its wholesale replacement.

2. Regulation of LIBOR.

   The Wheatley Review recommends that British authorities introduce statutory regulation of the administration of, and of submissions by banks relating to, LIBOR, including an "Approved Persons" regime, to provide independent supervision, oversight and enforcement, both civil and criminal.

   To implement this key reform, the Wheatley Review specifically recommends that:

   administering LIBOR and submitting to LIBOR become regulated activities under the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001; controlled functions are created in connection with these activities; the U.K. government support efforts in the European Union to proceed swiftly with developing and implementing a new civil market abuse regime and open...