Finally, and I think perhaps most importantly, the questionable behavioral norms in the industry – along with the weak control environments and compliance processes – that were uncovered during the investigations, exacerbated and facilitated the misalignment of incentives that are specific to LIBOR. It is a sad state of affairs if unethical behavior is socialized among new traders with the explanation that this is business as usual, and, if compliance and risk management are inadequate as a counterweight to prevent or identify wrong-doing. It is untenable if people working in compliance and risk are treated as secondclass citizens relative to the firms’ revenue generators. The official sector response The international regulatory community began to address these issues when the U.K. government published the Wheatley Review8 in September 2012. The Review recommended a ten-point plan, subsequently accepted in full by the U.K. government, for comprehensive reform of LIBOR. This led to many changes including the statutory regulation of the administration and submission process with respect to LIBOR, the selection of a new administrator for LIBOR, new governance and oversight regimes for the administrator and submission guidelines as well as a code of conduct for submitters. The BBA, the former administrator for LIBOR, for example, eliminated publication of certain currency and tenor rates and delayed the publication of bank-specific submissions. Perhaps most importantly, LIBOR-related activities are now subject to formal regulation and supervision in the U.K. I support the changes initiated by the U.K. government and believe they have substantially strengthened LIBOR.

I have focused here on the reform efforts around LIBOR, which is only one reference rate, albeit one that is widely used and a core part of our financial system. But, the need for stronger governance and more accountability spreads much further within the set of benchmark rates, and further  10  Reforming Major Interest Rate Benchmarks, Financial Stability Board. 11  Reforming U.S. Dollar LIBOR: The Path Forward, Remarks by Jerome H. Powell at the Money Marketeers of New York University, September 4, 2014. 6  BIS central bankers’ speeches  to encompass a wide range of practices within the financial system. For example, accusations have recently surfaced related to business practices within foreign exchange markets. While the concerns are technically very different than the practices uncovered around LIBOR submissions, the common theme is the willingness of a small number of market participants to behave improperly and contribute to a decline in confidence in the integrity of benchmark rates specifically and of major financial institutions more generally. Next steps I have discussed some of the observed problems in major reference rates that reflect egregious personal behavior. Some individuals responded to poorly-designed incentives and weak controls at some of the largest financial institutions. The regulatory community has already taken important steps to mitigate those concerns and real progress has been made. While this has helped to restore some of the integrity of particular reference rates, such as LIBOR, more work needs to be done before confidence in these rates are put on a firmer foundation.