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ICAEW offers help on Libor rules

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10th Sep 2012
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The ICAEW is developing guidelines for audits of banks' interest rate estimates in an attempt to restore confidence in London’s Libor benchmark.

In June, Barclays bank was fined a record $450m (£290m) for attempting to manipulate the London interbank offered rate (Libor), which is used globally to set the price of things ranging from credit-card fees to corporate loans.

Libor is calculated from banks' own estimates of their borrowing costs, without outside verification. Regulators reckon that Barclays was not the only bank to try to try to rig the rate and are investigating most of the world's largest banks.

Auditing banks’ Libor estimates will reassure financial markets, it is hoped.

The ICAEW is planning to publish draft guidelines by the end of this year.

“It is important to restore trust in these benchmarks, given the important role they play in establishing rates for many loans and market transactions,” said Iain Coke, the ICAEW’s head of financial services.

“External assurance can help provide that trust by testing that there are robust processes in banks for submitting rates to form the benchmark and that those processes are being followed.”

Coke said that other banks will probably either face a requirement in the future to have an external audit of their borrowing costs, or will introduce audits voluntarily to reassure markets and supervisors.

The Libor audit guidelines will be developed by a group chaired by Mike Lloyd, bank audit partner at Deloitte and chairman of ICAEW’s banking committee. ICAEW will seek views from various organisations including the Financial Services Authority.

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