Martin Wheatley, managing director of the Financial Services Authority and head of a government-appointed review into LIBOR, has suggested the inter-bank rate practice is 'no longer fit for purpose'.

'The existing structure and governance of Libor [London Interbank Offered Rate] is no longer fit for purpose and reform is needed,' Wheatley said in a speech in London, during which he launched a discussion paper setting out initial proposals for reforming the current framework for setting and governing Libor.

The paper - which sets out initial analysis of the role that LIBOR plays in financial markets; the flaws in the current structure of setting LIBOR, its governance and oversight; and a range of options for reform, including the issue of transition - now seeks feedback from all stakeholders over a four-week period.

Wheatley's independent review (the Wheatley Review) on the regulation of LIBOR began in July following shocking revelations of how the interbank lending rate was rigged at Barclays.

The paper suggests that retaining LIBOR unchanged in its current state is not a viable option, given the scale of identified weaknesses and the loss of credibility that it has suffered. Therefore, LIBOR has to be significantly strengthened to take account of these weaknesses, while, in parallel, alternative benchmarks that can take on some or all of the roles that LIBOR currently performs in the market should be identified and evaluated.

The closing date for submissions is 7 September 2012.

Findings and recommendations will be reported to the Cabinet Committee on Banking Reform by the end of the summer. Any necessary legislative changes will be considered for inclusion in the Financial Services Bill or the Banking Reform Bill.