EUROPEAN COMMISSION: Agreement on New Rules to Prevent Financial Benchmarks Manipulation

Thursday November 26 2015

The European Commission announced the agreement between the European Parliament and the Council of the EU on a Regulation of financial benchmarks.

The new rules were first proposed by the Commission in September 2013 in the wake of the alleged manipulation of various benchmarks which were to the clear detriment of consumers and companies throughout the EU.

The agreement will improve the governance of financial benchmarks produced and used in the EU in financial instruments such as bonds, shares, futures and swaps. The new rules are also directly relevant for consumers as benchmarks determine the level of mortgage payments of millions of households in the EU.

The new rules will reduce the risk of manipulation by ensuring that benchmark providers in the EU have prior authorisation and are subject to proper supervision.

The proposed regulation will now be subject to a vote by the European Parliament.

Background

The Commission proposed new standards for benchmarks in September 2013 in the wake of the alleged manipulation of various benchmarks including inter-bank offered rates (EURIBOR, LIBOR, etc.), benchmarks for foreign exchange (FX) and commodities including gold, silver, oil and biofuels.

The regulation will implement and is in line with the Principles for Financial Benchmarks agreed at international level by the International Organization of Securities Commissions (IOSCO) in 2012 and 2013. The Council agreed on a negotiating mandate for that proposal in February 2015.

The Regulation will contribute to the accuracy and integrity of benchmarks used in financial instruments and financial contracts by:

• ensuring that benchmark administrators are subject to prior authorisation and supervision depending on the type of benchmark;
• improving their governance;
• ensuring the appropriate supervision of critical benchmarks, such as EURIBOR/LIBOR, the failure of which might create risks for market participants and for the functioning and integrity of markets.

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