A global poll of CFA Institute members has suggested that rates set on actual interbank transactions are the most appropriate methodology for setting LIBOR. It is currently based on estimated rates only.

The administration of LIBOR should stay with the industry, but should be subject to formal regulatory oversight, surveyors said. Regulators should also be endowed with powers to pursue criminal sanctions over LIBOR manipulation, according to 82 per cent respondents.

The poll seeks to inform the UK government’s Wheatley Review and the European Parliament’s public consultation on LIBOR from the investor perspective, and contribute to the rebuilding of trust in the financial markets. The survey included CFA Institute members from the Americas (AMER), from the Asia Pacific (APAC) region and from Europe, Middle East and Africa (EMEA).

The key findings of the survey noted that the groups most affected by LIBOR manipulation were institutional investors, who have been most negatively affected financially by the manipulation of LIBOR. However, a much higher proportion of members from APAC (38 per cent) think that consumers have been most negatively affected as oppose to their AMER (27 per cent) and EMEA (28 per cent) counterparts.

Around 56 per cent of respondents said that the most appropriate methodology for the setting of LIBOR would be an average rate based on actual inter-bank transactions only. Some 70 per cent of respondents agreed that the LIBOR submission process should become a regulated activity, with a higher proportion of those from APAC (81 per cent) and EMEA (77 per cent) agreeing than those from AMER (65 per cent).

Around 55 per cent of respondents thought LIBOR should be administered and overseen by industry bodies, but subject to regulatory oversight, with an overwhelming majority of 82 per cent in favour of the regulator having powers to pursue criminal sanctions over LIBOR manipulation.

Rhodri Preece, CFA, Director of capital markets policy for CFA Institute, said, "LIBOR underpins the pricing of such a vast array of financial instruments and products, that any weaknesses in its calculation and oversight jeopardises the integrity of the financial system. Reforming LIBOR is therefore a crucial step to restoring investor and public trust from its current fragile state.''

The director went on to add that investment professionals have made it clear that the process could be improved by using actual transaction rates and better oversight to help re-build investor confidence.


(This article was published on September 13, 2012)
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