Rate Fixing Scandal: Japan Considers Shifting Tibor Oversight Responsibility to Regulator

Japan's Financial Services Agency is considering whether to follow in UK's footsteps, and strip the incumbent bankers' association of the responsibility of supervising the Tokyo interbank offered rate (Tibor), following a spate of scandals.

IBTimes UK reported that Japan's regulator was quietly overhauling the setting and supervision of Tibor after Citigroup and UBS were found to have attempted to manipulate rates.

According to unnamed sources with knowledge of the potential supervisory overhaul, cited by Reuters, FSA is now mulling over whether the country should give the responsibility of monitoring Tibor to the regulator, rather than the Japan Bankers' Association (JBA).

On 9 December 2011, the Securities and Exchange Surveillance Commission (SESC) issued a recommendation to Japan's Prime Minister and the Commissioner of the FSA to take "administrative action and any other appropriate measures against Citigroup and UBS" due to its investigation finding that a number of employees at both banks were attempting to manipulate Tibor rates.

However, a subsequent investigation by the JBA said that there was no evidence that Tibor benchmarks had been manipulated.

"We fully understand it is both meaningful and necessary to consider the regulatory framework for Tibor given international developments," said the JBA in a press statement this week.

"We expect proposals for a regulatory plan that will secure the reliability and transparency of Tibor in the international context.

"The banking group conducted its own review of Tibor, a process it says was prompted by the Libor scandals and the need to shore up the credibility of Tibor.

"We don't believe that there has been any problem in the administration of Tibor."

Meanwhile, the FSA said that it had convened a 12-member advisory panel to study Tibor and other financial indicators.

In July this year, NYSE Euronext revealed that it will take over the administration of Libor from the British Bankers' Association, after Britain's financial regulator stripped the trade body of its responsibility over the scandal-plagued interbank lending rate.

In a move that the Financial Conduct Authority (FCA) said will restore the integrity of the process, one of the world's largest exchanges, which is headquartered in New York, will be responsible for managing Libor by early 2014.

However London is not losing oversight of the benchmark. For the time being Libor will continue to be regulated by Britain's FCA - which assumed control of the interbank rate in April this year.

Tibor Fixing Scandal

In Japan, 15 reference banks, including Mitsubishi UFJ Financial, JPMorgan and Deutsche Bank, submit their interbank offered rates in a similar self-reporting and operating fashion to how Libor is set.

However, JBA calculates the Tibor benchmark rate, which it has done so since 1995.

The rates set by the Tibor panel are used as the basis for loan and derivative contracts like the more widely used Libor rate.

According to the JBA website, the reference banks submit their Tibor rates to the JBA, which in turn compiles them and sets a benchmark. The JBA Tibor is calculated by the JBA as a prevailing market rate based on quotes for 13 different maturities (1 week and from 1 month to 12 months) provided by reference banks as of 11am each business day.

The JBA excludes the top two and the bottom two reference rates for each maturity and takes the average of the remaining rates.

Over the past year, Japanese regulator SESC has cracked down on banks that have been seen to manipulate or attempt to rig the Tibor rate.