LONDON Dishonesty uncovered in setting Libor benchmark interest rates is now in the past and replacing them would be problematic, the head of Financial Services Authority said on Tuesday.
The discovery that bankers rigged the global rates determining the value of assets worth more than $500 trillion has put regulators under fire for failing to spot the problem in 2008 and set off a debate over whether the system should be replaced.
"I think it has been pretty robust since 2009 and 2010," FSA Chairman Adair Turner told a Bloomberg News event. "People are trying to do it as honestly as they can."
Libor rates are based on interest rates that banks say they will offer rather than those they used in actual deals, meaning they depend on the honesty of the banks' submissions.
Barclays has been fined $453 million for rigging Libor in 2008 at the height of the global financial crisis. Other banks, including Royal Bank of Scotland and HSBC, are under investigation around the world.
Turner said that since early 2011, banks have had to attest to the quality of their Libor submission process to the regulator.
"I would be very amazed if at the moment there is anything remotely like the problems of the past in terms of deliberate manipulation," Turner said.
In the distant past it would have been harder to spot manipulation of the benchmark interest rates, which originated in the 1960s, but any rigging would also have had a smaller impact, Turner said.
Because so many contracts were now linked to Libor estimates, it would create a major problem if there were an attempt to switch to a benchmark based on actual transactions, he said.
Recommendations on Libor setting and governance are due by the end of the summer from Martin Wheatley, who from next year will head the new Financial Conduct Authority - which together with Bank of England will take over financial industry regulation.
Turner is seen as a possible candidate to head the Bank when the governorship falls vacant next year.
His second speech in a week in which he went well beyond his regulatory remit - commenting on the need for euro zone countries to address their debt crisis swiftly - reinforced suspicions he could be positioning himself for the role.
Thomson Reuters Corp is the British Bankers' Association's (BAA) official agent for the daily calculation and publishing of Libor. The company has said it continues to support the BBA in calculating and distributing Libor rates.
(Reporting by Huw Jones; Editing by Matthew Tostevin)