n the other end of the transaction also lose out. As Banks collude with each other, it is evitable that some Bank reaps the reward of capitalizing on the manipulation, whilst the other banks and traders must fall victim for the meantime. Due to the vast importance of LIBOR, a tiny manipulation in the wrong direction could result in trillions of pounds being lost.
Critical Evaluation of LIBOR Reforms
Wheatley’s proposal on reform recommendations have been implemented since and have proved successful in maintaining and preventing future manipulation in LIBOR. One of his recommendation’s including the ratification of replacing the British Banking Association as the LIBOR administrator, with the ICE Benchmark Administration (IBA).
Wheatley insisted that banks should submit actual transactions, rather than ‘expert’ estimations on the rate. Five less frequently traded currencies have also been discontinued (NZD, DKK, SEK, AUD, CAD), while the five that remain now only report the 1 day, 1 week, as well as the 1, 2, 3, 6, and 12-month maturities (David Hou, 2014). Publishing submissions based on transactions is very important. During the Scandal, submissions from banks would occur on the same day. Given this reform and changing submission of publication from immediately to one months after, this heavily restricts various banks from distorting numbers for the benefit of their own. This provides a more accurately, consistent rate at which banks lend at, which will benchmark the rate more to its true value.
The Financial Conduct Authority (FCA) now overlooks the regulatory procedures of LIBOR, which their conduct is centred around Wheatley review: where falsifying submissions is now a criminal offence, and can result to heavy, harsh fines and prosecutions. This regulatory pressure aides the suppression of Banks, and acts as a deterrent for further manipulations. Now, Banks take precautionary measures when submitting data, given the harsh actions that would unfold if they didn’t comply. Recently, in 2016, The Chief Executive of The FCA concluded to bury LIBOR, due to producing far below average transactions of currency-tenor in year 2016.
The FCA are aiming to reform the LIBOR by phasing out LIBOR after 2021 –
