Libor could be scrapped as a key indicator for the City after it was branded "not fit for purpose" in an inquiry set up in the wake of the rate-rigging scandal.

The review into how Libor is calculated has released its first set of proposals.

The discussion paper by Martin Wheatley from the Financial Services Authority, outlined a number of proposals to overhaul the way the rate is set.

It suggests regulators should be given more powers to prosecute traders.

Other proposals include introducing a standard procedure to corroborate submissions and using more hard data to set the rate.

In a speech, Mr Wheatley said: "The attempted manipulation of Libor and its European equivalent Euribor have cast a shadow over the industry at large and the construction and governance of the benchmark themselves.

"It is clear that regardless of the outcome of ongoing international investigations, trust in a vital part of the financial system has been badly damaged and timely action is needed to restore it."

The proposals are the first step of the independent review ordered by Chancellor George Osborne following the Libor scandal.