It’s a question of trust
3 July 2012
As a child, every Saturday night I had faith that Jim would "fix it" for a deserving soul. He died earlier this year, reputation still intact.
As an adult, in my treasury life I’ve got used to a once a day fixing of a different kind. LIBOR is always there when you need it. The daily fixing process, starting from its ancestral roots in 1984, has become woven into the fabric of financial life. It has become the composite reference rate standard and is now widely used for fixings on more than $500 trillion of financial contracts.....a number of which are due to last 50 years.
Contributing banks play a crucial but surprisingly voluntary role in the LIBOR setting process. If the rate is to truly represent the "lowest real cost of unsecured funding in the London market" as stated on the BBA LIBOR website, we must have both confidence in the process, and ensure that all major participants in the relevant currency market contribute rates (read our LIBOR-EURIBOR rate setting press release here).
Earlier this year BBA Libor announced a review of LIBOR. This is to be welcomed and supported. Confidence needs to be rebuilt in the composite rate setting process. Regulators are still investigating the past rate setting practices and it is already clear more details will emerge. Reputations will be called into question. If that happens who will stand up for the honest market professional in those organisations which may be tainted?
Is it perhaps too old fashioned to suggest it? Internal controls, robust systems, segregation of duties, check and balances, internal audits, external audits - in my treasury career they have all played vital roles in protecting both shareholders’ wealth and also the reputations of hard working honest finance professionals. Management are always responsible for ensuring they exist and function properly to protect the interests of both shareholders’ and honest employees alike.
Sadly last week’s events have overshadowed very positive pieces of ACT news. Linda Yueh, Economics Editor for Bloomberg Television gave us a very successful summer key note address. In support of our Royal Charter application, members also gave us overwhelming support at the EGM for the slight amendment to our proposed Bye Laws. These have now been submitted to the Privy Council. We await news - hopefully positive - during July
By Colin Tyler