[ by Howard Haykin ] It's often easier to build a new system or house than try and repair the existing structure.  Building anew can also provide greater transparency - no small consideration in the age when distrust and anger tends to taint one's perception of any and all actions - even the most honorable efforts. Wholesale changes are in store for Libor - the rate and the system - at the center of the rate-rigging scandal.  Martin Wheatley, the British regulator in charge of overhauling the rate-setting process, outlined plans on Friday that could lead to wholesale changes to Libor, which is used as a benchmark rate for more than $360 trillion of financial products, including mortgages and loans.

• Reforms may lead to the scrapping of the current system, which is overseen by the British Bankers' Association, a trade body.
• New laws may declare it a criminal offense to manipulate benchmark rates.
• Increasing governance of the rate-setting process, after authorities found deficiencies in how the system was overseen . In discussions dating back to 2008, American and British central bankers had raised concerns with the British Bankers' Association about how the rate was governed.
• Increased auditing of bank submissions to improve transparency.

Mr. Wheatley, who is managing director of the Financial Services Authority, the British regulator stands by these notions:

• "The existing structure and governance of Libor is no longer fit for purpose and reform is needed."
• "Trust in a vital part of the financial system has been badly damaged and timely action is needed to restore it."

Those are tough words from British authorities, but it comes as large global banks - including Citigroup and HSBC seemingly fall in line to be the next bank to take it's punishment - though hoping for more lenient treatment than was accorded Barclays. It would not surprise analysts if combined fines and penalties for the financial services industry ultimately exceed $20 billion. Libor Timetable. Mr. Wheatley is in charge of a British government review of the Libor-setting process, which will offer recommendations in late September about how the rate could be changed.  On Friday, the British regulator said the inquiry was likely to lead to major changes to Libor, including the use of actual trading data to set the daily benchmark rate.

Currently, a number of banks are polled each day about what their lending costs may be if they tapped the financial markets for financing. During the recent financial crisis, so-called interbank lending between firms was drastically curtailed, which led bank executives to submit incorrect data for Libor, according to regulatory filings.

The review will center on potential criminal sanctions against individuals that manipulate the rate. American and British authorities are currently considering the prosecution of traders implicated in the scandal, though European officials want to write new legislation to make the manipulation of Libor and other benchmark rates a criminal offense. "Any new governance framework should ensure that the compilation process itself is subject to a much greater degree of independence, transparency and accountability," Mr. Wheatley said on Friday. British authorities said they would be working with American and other international counterparts as part of the wide-ranging review.  Banks are expected to provide feedback on the potential reforms by early September. With regulators continuing their investigations into the activities of global firms, banks are likely to face pressure to support the changes to Libor. "The past few months have presented a series of very significant reputational challenges for the financial services industry," Mr. Wheatley said.  "It's clear from the reaction to the Libor scandal that consumers think it's important." For further details, go to:   [Dealbook, 8/10/12].