Regulator calls for 'urgent reform' on Libor

The City regulator charged with picking up the pieces from the Libor scandal called for "urgent reform" yesterday as the Treasury published terms of reference for a rapid inquiry into the setting of the key interest rate.

The Financial Services Authority's (FSA) Martin Wheatley, pictured, will consider whether to use actual trading data from banks in setting Libor, rather than their best estimates of how much they would have to pay for funds in the market – making it less open to manipulation.

Mr Wheatley, chosen to lead a review after the scandal which engulfed Barclays and threatens to taint a host of other banks, will publish a discussion document on 10 August. Banks will have four weeks to respond before full recommendations are published in September as the Government looks to move quickly on reform.

The review will also consider alternative rate-setting processes and the financial stability consequences of a move to a new regime. It is also likely to beef up the powers available to regulators to tackle Libor abuse.

The Serious Fraud Office also said yesterday that it was satisfied existing criminal offences are capable of covering conduct in relation to the alleged manipulation of Libor rates. Its investigation covers a number of financial institutions, including Barclays and HSBC.