The Wheatley review is therefore welcomed by the Association of Corporate Treasurers (ACT). All will agree on the need for better governance, for tackling abuse and for a robust legal framework. On actual design of the product there could be a divergence of views. Contributors want to avoid liability. They and regulators alike want to avoid reputational risk from their participation in or oversight of rate settings. Contributors and regulators need to accept those risks and to manage them. All will want a system amenable to regulation and with rates open to corroboration on review. But for users the focus is on utility: reliable and representative rates available in a timely manner each business day. For non-financial corporates the rates need to have a reliable relationship with sovereign rates and the relative credit standing of a representative banks and reflecting appropriately market liquidity issues. As Colin Tyler Chief Executive of the ACT says,
We believe that the banks cannot avoid an element of judgement despite their wish to run away from that. To reduce their liability they need a robust external legal framework and strong compliance procedures internally. Regulators need to be engaged with the rate setting process and its governance – bringing unwelcome reputational risk for the regulators.
On a first reading we believe that the Wheatley Review consultation paper shows a good grasp of the necessary features of these essential reference rates and the difficulties of producing rates in the current and expected environments and the needs of the real economy. The Review seems to be taking a workman like approach and we look forward to submitting our detailed views in due course. Notes for Editors 1. The ACT represents its members working in commercial and industrial companies that through their treasury activities are users of LIBOR and similar reference rates. Financially, LIBOR is widely used in setting borrowing rates on many types of corporate funding and it is the reference rate on derivatives used to manage company exposures to interest rates. It is also embedded in many normal commercial contracts. 2. Further comments on LIBOR have been made in recent ACT blogs LIBOR: Waiting for Wheatley, #Libor: (1) Banks are the risk, #Libor: (2) What should it look like? 3. The Wheatley discussion paper is available here.