Britain announced plans on Wednesday to make it a criminal offence to manipulate interbank Libor lending rates, backing the findings of a major report into the Barclays rate-rigging scandal.
The Financial Services Authority (FSA) -- the nation's finance regulator -- had recommended last month that the Libor interest rate receive a "complete overhaul" in the wake of this summer's notorious affair.
Treasury minister Greg Clark said the coalition government would press ahead with far-reaching reforms from the review, which was carried out by FSA managing director Martin Wheatley and commissioned by finance minister George Osborne.
The Treasury added the Wheatley report's recommendations would be implemented "in full", adding that the British Bankers' Association would be stripped of its role in setting Libor, with the oversight process handed to a new group.
The government said that it will seek to change the law and introduce the Libor reforms as soon as possible.
Wheatley had also argued that the FSA needed powers to punish those who attempt to manipulate Libor, which is used in a vast number of global financial transactions totalling at least $300 trillion.
"Today the government re-affirmed its commitment to reforming the submission and administration of the London Interbank Offered Rate (Libor) benchmark by accepting the recommendations of Martin Wheatley's independent review of Libor in full," the Treasury said in a statement.
"The government has been absolutely clear since the Libor scandals emerged in June this year that any attempt to manipulate this important international benchmark is unacceptable and those that do so must be punished.
"Immediate steps will now be taken to ensure that those who use and rely on Libor for trillions of dollars of transactions globally can have confidence in its integrity and the supervisory regime that underpins it."
A new administrator is now being sought to run Libor in place of the BBA, while a code of practice will also be drawn up for banks submitting lending rates.
"The government's changes to legislation will ensure that those that attempt to manipulate Libor face the full force of the law," added Clark.
"But this is just one part of the process. The banks and the BBA will have to play their part to ensure that reform is effective and Libor's reputation is restored."
The scandal erupted when Barclays bank was fined £290 million ($470 million, 363 million euros) by British and US regulators for attempted manipulation of Libor and Euribor interbank rates between 2005 and 2009.
Barclays is the only bank to have been fined so far, but it is understood that at least 15 banks globally are being investigated for possible Libor manipulation.
Libor is a flagship instrument used all over the world, affecting what banks, businesses and individuals pay to borrow money. Euribor is the eurozone equivalent.
The Libor is calculated daily, using estimates from banks of their own interbank rates. However, the system has been found to be open to abuse, with some traders lying about borrowing costs to boost trading positions or make their bank seem more secure.