EU seeks to overhaul Libor after rate-rigging scandal

BRUSSELS (AFP) - The European Commission will shortly present proposals to tighten up oversight of key financial market benchmarks, especially of interest rates, after recent rigging scandals in London, officials and sources said on Thursday.

A source close to the issue said a key element could involve moving Libor, a global interest rate indicator, from London to Paris, where it would be supervised by the European Securities and Markets Authority.

Such a move would very likely anger the British government, which jealously guards the City of London, home to one of the world's largest financial markets.

"I intend to present... a legislative proposal on the benchmark indices this summer," EU Markets Commissioner Michel Barnier said. He said this "will notably establish good governance regulation to ensure greater transparency, manage conflicts of interest and make sure the indices are a true reflection" of the market.

There would be "penalities for flouting the rules", he added.

Libor, or the London Interbank Offered Rate, is a flagship reference instrument used all over the world, affecting what banks, businesses and individuals pay to borrow money. It is calculated daily, using estimates from banks of their own cost of borrowing on the interbank market, and affects the pricing of more than US$300 trillion (S$375 trillion) of contracts across the world, according to regulators.

London's role, however, has been undermined by revelations that major banks, among them Barclays, Royal Bank of Scotland and UBS, have manipulated Libor to their advantage, especially during the turmoil and aftermath of the 2008 global financial crisis.

British regulators last month laid out plans for a new system combining survey-based rates and objective data to replace the current system, hoping to head off EU efforts to take overall control of such a key financial market instrument.