LONDON (SHARECAST) - The Financial Services Authority's report into the London Interbank Offered Rate (LIBOR) scandal recommends that the British Bankers' Association (BBA) should have no further role in the setting of the key interest rate.
FSA Managing Director Martin Wheatley, also told the BBC that, in future, bankers who fiddle the system should go to gaol.
The BBC quotes Wheatley as saying that society wanted people who played fast and loose with financial regulations to "pay the price, and if that includes gaol for the most extreme fraud in the system, then that's what should happen".
"The system is broken and needs a complete overhaul," Wheatley claimed.
The main recommendations of the FSA's LIBOR report are: a new regulatory structure for LIBOR; seek other groups to supplant the BBA's role in LIBOR setting; more banks outside the current score of banks setting the rates to submit rates to be factored into the calculation of LIBOR; reducing the number of daily LIBOR fixings to 20 from 150 and the number of currencies used to the most popular rates.
The FSA would like parliament to allow the City watchdog to investigate any instances of future LIBOR manipulation, and to be given the power to prosecute, if necessary.
The London Interbank Offered Rate, despite the reference to London in its name, is a key reference rate used across the globe in billion of pounds worth of contracts and loan agreements.
Symptomatic of the fundamental change in the nature of banks since the onset of the Thatcher-Reagan era, from organisations designed to facilitate the ability of their clients to conduct business to money harvesting machines in their own right, banks have been able to make money trading financial instruments linked to LIBOR and, in some cases, those banks which have an influence on the setting of LIBOR rates have reportedly done so in order to benefit their own trading positions.
UK bank Barclays is the most high profile bank to get caught up in the LIBOR scandal, and was hit with a £290m fine after admitting LIBOR manipulation. Other banks are under investigation, however, and earlier this week there were reports indicating that managers at state-owned lender Royal Bank of Scotland condoned and participated in the manipulation of global interest rates, indicating that wrongdoing extended beyond the four traders the bank has fired.