Supervision of the scandal hit Libor interest rate could move to Paris under plans being drawn up by the European Commission, dealing a potential blow to London's financial pre-eminence.
Brussels has drawn up proposals to formalise regulation of a range of pricing structures, from the Libor inter-bank lending rate to benchmarks for oil and gold, the Daily Telegraph reports.
Under the plan, Libor would come under the supervision of the European Securities and Markets Authority, which is based in Paris.
Any move out of London could be a cause of much embarrassment for the UK authorities, which have already had to admit to failure in allowing traders to rig the $300trn global market.
Several banks, including Royal Bank of Scotland and Barclays, have already been fined hundreds of millions of pounds and the Libor setting process is being overhauled.
To restore trust in the index and regain credibility for the UK regulators, the Government has acted quickly - already putting a number of reforms in place.
Supervision of Libor's operation was moved from the British Bankers Association to the Financial Conduct Authority in April, and new laws have been passed that make manipulation of the rate a criminal offence.
The UK is also close to appointing a new body to compile the daily benchmark rate. And George Osborne has set up a committee to look into Libor's failure.
However, senior City sources warned that a Paris-based regulator risked marginalising Libor and diminishing London's status as a global financial capital.
"The UK Government clearly has an interest in London being a global financial centre, and Libor being a successful global index is part of that. Paris doesn't have the same incentives for the success of London as the UK Government," one senior City figure said.
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