The Wheatley review has called for the opening of a tender process for organisations to take over the running of Libor.

It follows the recommendation from Martin Wheatley, head of conduct at the Financial Services Authority, for the British Bankers' Association to be stripped of its responsibility for administering Libor following the recent failures to properly oversee the rate setting process.

Baroness Sarah Hogg, chairman of the Financial Reporting Council, has already agreed in principle to chair the panel once it is established.

Wheatley also said bankers found guilty of trying to manipulate Libor should be properly punished with 'criminal sanctions' and jail time.He said Libor was 'broken and needs a complete overhaul' after disgraced banks cynically rigged the benchmark rate used globally for trillions of dollars worth of financial contracts and setting loan rates such as mortgage costs.

'Trust in a vital part of the financial system has been badly damaged,' he said. 'Today's report sets out my plans for reforming what has become a broken system and to help restore the trust that has been lost. Libor needs to get back to doing what it is supposed to do, rather than what unscrupulous traders and individuals in banks wanted it to do.

'I have concluded that Libor can be rehabilitated through a comprehensive and far-reaching programme of reform. Although the current system is broken, it is not beyond repair, and it is up to regulators and market participants to work together towards a lasting and sustainable solution.'

The Libor scandal was uncovered in June when Barclays was hit with a £290m fine for its part in manipulating the rate. The ensuing fallout led several senior scalps at the bank, including chief executive, Bob Diamond and chairman, Marcus Agius.

Wheatley's review called for new and robust regulation with a specific requirement for banks to back up their submissions with evidence of relevant transactions. It also wants detailed technical changes to be implemented in a bid to refine the way the rate is put together, to make it much harder to manipulate.

Iain Coke, ICAEW head of the financial service faculty, said: 'Although there are few surprises in Wheatley's recommendations, they are sensible proposals for strengthening the system. We firmly support the demand that institutions obtain external assurance on their libor processes and we are developing a framework for this.

'However, creating a specific offence of "manipulating Libor" seems unnecessarily narrow; we would prefer to see either wider anti-fraud provision criminalising similar forms of market abuse or for the FCA [Financial Conduct Authority, set to replace the FSA] to be given powers to prosecute under the Fraud Act. '

He said what is really needed is a 'real change in culture, embedding integrity and eradicating the "what can I get away with" attitude'.