The City financier tasked with reviewing Libor, the inter-bank lending rates at the heart of the rate-rigging scandal, has declared the regime is currently "not fit for purpose."
Martin Wheatley's consultation paper is the first concrete step to reforming Libor amid a deepening crisis that has dragged in global banks and hurt the reputation of regulators on both sides of the Atlantic (Stuttgart: A0J3C9 - news) .
He told an audience in London that if significant reform was not possible, alternatives to Libor should be identified.
In his speech, the Financial Services Authority's head of conduct regulation said $500tn of contracts made under Libor could not be put at risk by simply axeing the rate.
However, Mr Wheatley said Libor needed to be a borrowing rate based on actual trades rather than just banks' own estimates - in effect a dual system.
He has suggested the setting of the rate could be overseen by a new independent body in future rather than the British Bankers' Association and regulation of the system would allow criminal sanctions to be introduced against those attempting to manipulate Libor.
The proposals are the first step of the independent review ordered by Chancellor George Osborne following the Libor scandal.
Banks and other interested parties now have four weeks to respond to the consultation paper.
Final recommendations are expected to be published by the end of September.
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