Manipulation of Libor, which is used to set prices for trillions of dollars of financial products around the globe, resulted in a €373-million penalty for Barclays Bank last month.
Bob Diamond, the British banks chief, was forced to resign and the scandal threatens to drag several other banks into the rate-fixing scandal.
Announcing measures to criminalise index fixing, Michel Barnier, the European commissioner for the internal market, said he was examining tighter supervision of such benchmarks and questioned their current method of calculation.
Banks currently supervise the London Interbank Offered Rate, or Libor, and its continental European equivalent Euribor themselves. But self-regulation is set to end.
"Everything has been put on the table except one and that is that of status quo and self regulation," Barnier told journalists. "We will need to propose further ... methods in relation to the ... public supervision of all reference rates and benchmarks."
The European Banking Federation, which oversees Euribor, said it backed public supervision as fast as possible.
‘Banksters’ no better than corrupt casino dealers
Barnier made his remarks as he outlined a proposal to criminally sanction traders and others involved in rigging an index such as Libor. New rules are not set to take effect until 2015.
Viviane Reding, the EU's justice commissioner, said such measures were just a first step in dealing with the misconduct of bankers, whom she described as “banksters” and compared to "corrupt casino dealers betting with their clients' savings".
"I was not very much convinced by the action of the Bank [of England]," she said, in frank remarks that Barnier declined to repeat. "It has already got, years before, a warning that things were going wrong. It has not acted. The Libor scandal reveals major faults in the governance of the process."
Reding suggested the European Central Bank could become the supervisor to "end this very cosy relationship that exists today between some national supervisors and banks," in remarks that are likely to anger those in Britain who wish to retain autonomy in policing finance.
"We need rigour, independence. We need it at the European level. We cannot continue with the casino mentality," Reding said.
Harsher punishments needed for rate-fixers
The Bank of England, which does not regulate the financial sector, says it was unaware of any fraudulent rigging of the rate, though officials acknowledged that banks had difficulties with their estimates for Libor submissions when the money markets froze in the 2008 financial meltdown.
"Should we head towards a systematic approach to the way in which these benchmarks are composed based on real facts and figures rather than estimates?" Barnier said.
The change to the EU-wide rules concerning market abuse means it would no longer be possible for countries to take a softer stance on such offences. Insider dealing is, for example, dealt with differently by countries such as Germany, Italy and Spain.
Barnier wants to leave it up to countries to decide what penalties they want for those found guilty of index rigging. By criminalising it, however, he gives them a free hand to impose harsher punishment.