Tuesday

19th Feb 2019

New EU rules to stop banks rigging benchmarks

  • Financial products worth $300bn are set by Libor (Photo: stefan)

Banks should publicly detail how and why they set financial sector benchmarks, according to new rules on rate-setting published by EU regulators Thursday (6 June).

The regime, prepared by the European Securities and Markets Authority (ESMA), the Paris-based pan-European watchdog, would require rate-setting panels to publish information showing how they have arrived at their decisions.

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They would also require data on calculation methods and quotes for all benchmarks, while contingency plans should be set up in case the supply of data needed to set a rate dried up.

In a statement, ESMA, which drafted the rules in consultation with the London-based European Banking Authority (EBA), said that it wanted to beef up "the robustness of the procedures, ensuring transparency to the public and creating a level-playing field."

The new rules would "give clarity to benchmark providers and users in the European Union about what is expected of them when engaged in this critical market activity," said Steven Maijoor, chairman of ESMA.

"These principles reflect the wider work being carried out on benchmarks and their immediate adoption will help restore confidence in financial benchmarks and prepare the way for future legislative change," he added.

For its part, ESMA could be in line for sweeping new powers in the control of Libor.

Internal market commissioner, Michel Barnier, whose remit covers financial services, is expected to table legislation that would shift decision-making on Libor from London to Paris later this summer.

The Libor rate-fixing scandal made headlines last summer, with a string of major banks in the US and the EU implicated in keeping the rate artificially high over a period of several years.

Among them, Barclays, Royal Bank of Scotland and the Swiss-based UBS, were fined £1.7 billion (€2 billion) for their role in manipulating the rate.

Libor, which is the London-set interest rate at which banks lend to each other, determines the price of an estimated $300 trillion worth of financial instruments.

However, some regulators believe that Libor is beyond saving, including Gary Gensler, chairman of the influential US Commodity Futures Trading Commission.

Gensler believes that Libor does not reflect genuine inter-bank lending rates and should be replaced by other benchmarks.

Meanwhile, MEPs are also keen to include criminal sanctions for rate fixing.

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