LONDON — The British government on Monday announced a review into the rate-setting process at the center of the recent financial scandal.
It comes as British and US regulators face mounting scrutiny for their passive approach in policing benchmark rates, including the London interbank offered rate, or Libor. Since Barclays struck a $450 million settlement last month over rate manipulation, lawmakers have blasted authorities for having failed to stop illegal activities at the British bank, despite evidence of problems.
The two-month, government-mandated inquiry will focus on whether British officials should regulate Libor and how governance of the rate can be improved.
Currently, the British Bankers’ Association, a London-based trade association, oversees the Libor process, but US and British government officials have raised concerns that there is not enough oversight of how the rate is set.
‘‘It is clear that urgent reform of the Libor compilation process is required,’’ said Martin Wheatley, managing director of the Financial Services Authority, the British regulator that will conduct the review. ‘‘Such reform may include amendments to the technical definitions used for Libor, the associated governance framework, and the role of official regulation.’’
The results of the review will be published by the end of September and may prompt legislation to criminalize rate manipulation, according to a statement from the government. The inquiry will not focus on specific actions by banks implicated in the Libor investigations.
Last week, the European Commission announced plans to make Libor manipulation a criminal offense. US and British authorities are considering potential criminal prosecutions of traders involved in the rate-rigging scandal.
The British review follows a public outcry against the manipulation of Libor. Many of Barclays’ senior executives, including its chief executive, Robert E. Diamond Jr., and its chairman, Marcus Agius, have resigned since the scandal.
The British bank revealed last week that it is a defendant in a number of class-action lawsuits connected to the manipulation of Libor and the European interbank offered rate, or Euribor.
The investigations could prove costly for many of the world’s largest financial institutions. Banks may have to pay more than a combined $20 billion in fines and penalties, according to estimates from Morgan Stanley.