Compliance

UK Financial Regulator Wants To Oversee Seven New Market Benchmarks, Learn From LIBOR Scandal

Tom Burroughes, Group Editor, London, 23 December 2014

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The UK financial regulator said it wants to add seven UK-based market benchmarks in areas such as interest rates, currencies and gold to those that it already oversees, coming at a time when benchmark-fiddling has become one of the biggest scandals in recent financial history.

The UK financial regulator said it wants to add seven UK-based market benchmarks in areas such as interest rates, currencies and gold to those that it already oversees, coming at a time when benchmark-fiddling has become one of the biggest scandals in recent financial history.

The Financial Conduct Authority announced yesterday that it will regulate seven additional major UK-based financial benchmarks in the fixed income, commodity and currency markets from 1 April 2015. The move widens its initial regulation of LIBOR (the London Interbank Offered Rate), as introduced by the UK government in 2013 and comes after a review of how markets need to be supervised.

A number of banks, such as Barclays, Lloyds Banking Group and Royal Bank of Scotland have been fined and punished for manipulation of the LIBOR rate, a saga that rocked confidence in global markets because such benchmarks typically are reference points for mortgages, structured products, savings policies and other products.

“I am determined to ensure that markets work well and preserve the UK’s reputation as a centre of excellence for financial services – today’s announcement is a vital step in achieving this. This builds on our work to strengthen LIBOR, and drive up standards on benchmarks across the board,” Martin Wheatley, chief executive of the FCA, said in a statement.

The FCA is asking for industry views on widening its regulatory powers to the following benchmarks:

-- SONIA (Sterling Overnight Index Average) and RONIA (Repurchase Overnight Index Average), which both serve as reference rates for overnight index swaps;
-- WM/Reuters London 4pm Closing Spot Rate, which is the dominant global foreign exchange benchmark;
-- ISDAFIX, which is the principal global benchmark for swap rates and spreads for interest rate swap transactions;
-- London Gold Fixing and the LMBA Silver Price, which determine the price of gold and silver in the London market;
-- ICE Brent Index, traded on the ICE Futures Europe (IFEU) exchange, which acts as the crude oil futures market’s principal financial benchmark.

Benchmark administrators and firms that contribute to benchmarks will be FCA-authorised, and the FCA proposes that a senior individual within each relevant firm should ensure rules are followed.

The consultation closes on 30 January 2015; final rules are expected during the first quarter of next year.

 

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