Reinforced audit procedures and strengthened
reporting practices are one of the cornerstones for the London
inter-bank offered rate (LIBOR) reform, according to a report from
Financial Services Authority (FSA) managing director Martin
The Wheatley Review of LIBOR is the result of
a study commissioned by the Chancellor of the Exchequer to assess
the need for wider policies in the aftermath of the LIBOR scandal
that came to light in June.
The report recommends the British Bankers
Association (BBA) should endow the role of LIBOR administrator and
sponsor to a new rate administrator.
It recommended that as a ‘priority’ the new
administrator should draft an industry-led code of conduct that,
among other requirements, has to implement regular external audits
of LIBOR submitting firms.
The code of conduct would also define enhanced
reporting practices that allows for personal accountability within
submitting firms and puts in place internal procedures for sign-off
Wheatley also recommends that the requirements
for external audit should be implemented 6 months after the
introduction of the code and subsequently every 2 to 3 years.
Under the provision of the code, institutions
will be required to obtain regular external assurance to confirm
whether they abide to the new rules of conduct. According to
Wheatley, assurance from external auditors can play a major role in
restoring public confidence in the LIBOR.
“External assurance provides an independent
review that published benchmarks are fairly presented as well as
firm systems and internal controls used to support LIBOR
submissions and internal governance arrangements,” Whealtley
ICAEW project welcomed
On the back of this the Wheatley Review has
welcomed the project recently launched by the Institute of
Chartered Accountants of England and Wales (ICAEW) aimed at
providing auditors with guidance on external assurance standards
for interest rate benchmark submissions.
The report recommended the ICAEW should work
with the new LIBOR administrator to ensure that their guidance
informs and is consistent with the code of conduct.
“Wheatley’s recommendations […] are sensible
proposals for strengthening the system. We firmly support the
demand that institutions obtain external assurance on their LIBOR
processes,” ICAEW financial service faculty head Iain Coke
Coked commented that whether the solution is a
‘Newbor’ or a ‘Tweakbor’ the future success of the benchmark rate
requires “better oversight and governance”.
“One way to restore the public’s and the
markets’ confidence in such benchmarks is to have the submissions
and processes checked by an independent third party,” Coke
However, he notes that although the Wheatley
report is a specific response to deal with a specific problem what
the system needs is a cultural revamp.
“In order to regain trust in Banking, what is
needed is a real change in culture, embedding integrity and
eradicating the “what can I get away with” attitude,” Coke
The HM Treasury also confirmed that the UK
government is now considering Wheatley’s recommendations.
“It is the government’s intention to respond
to the review when Parliament returns, and introduce any necessary
legislation in the Financial Services Bill that is currently being
considered by the House of Lords,” HM Treasury said.
Scandal comes to light
Earlier this year, Barclays admitted the
rigging of inter-bank lending rates and the FSA and the US
Commodities and Futures Trading Commission (CFTC) imposed fines
that amounted to £290m ($460m).
Barclays’ chief executive Bob Diamond and the
bank’s chairman Marcus Agius were forced to resign as a consequence
of the misconduct and another sixteen banks are being investigated
by US and European regulators for allegedly being involved in the