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Barclays Wins Dismissal of US Lawsuit over Libor, as FCA Outlines Replacement

A US lawsuit brought by shareholders against Barclays, which claimed financial loss as a result of the UK bank’s manipulation of the London interbank offered rate (Libor) has been dismissed. Meanwhile, the head of the new UK Financial Conduct Authority (FCA) has told the 'FT' that a replacement dual-track system with survey-based lending rates running alongside transaction-linked indices, could be introduced by next year.

US District Judge, Shira Scheindlin, residing in Manhattan ruled that investors who owned Barclays’ American depositary shares (ADS) did not show that the bank and other defendants, including its former chief executive officers John Varley and Bob Diamond, misled them about Libor or took too long to reveal potential liabilities, dismissing the case.

She also said the investors failed to show that alleged Libor manipulation between August 2007 and January 2009 caused them to lose money through June 2012, when Barclays agreed a US$453m settlement with US and European regulators.

The lawsuit, brought on behalf of ADS purchasers between July 2007 and June 2012 and led by the Carpenters Pension Trust Fund of St Louis in Missouri, and the St Clair Shores Police & Fire Retirement System in Michigan, had sought class action status.

Scheindlin said the plaintiffs will not get a chance to amend their lawsuit, having failed to address previously identified deficiencies in their second amended complaint.

New Libor Replacement Benchmarks Outlined by FCA
The US legal judgment comes as reports suggest that the Libor benchmark is likely to be replaced by a dual-track system with survey-based lending rates running alongside transaction-linked indices as soon as next year.

Martin Wheatley, chief executive officer (CEO) of new UK regulator, the Financial Conduct Authority (FCA), said to the 'Financial Times' that a parallel system would provide continuity for holders of US$350 trillion in existing contracts that reference Libor while also paving the way for a new benchmark tied more closely to objective data.

Wheatley told the paper that he believes market participants rather than regulators should make the final decision on how and when to scrap Libor. “You can’t just say: ‘Forget about yesterday’s problems, we’ll just move to the future,’” he said. “If you change the definition, it’s almost certain that one side of every one of those trades would lose out and then would say: ‘We’re no longer bound by this.’

“You really want an organisation that can run both the old model and the new model together. It may not be possible to design a continuous rate.”