The EU has today taken a further step towards restoring public trust in financial benchmarks in the wake of recent scandals over the manipulation of the LIBOR and EURIBOR benchmarks. In a move welcomed by the European Commission, the Council has given its backing to new proposed rules to enhance the robustness and reliability of benchmarks, which are used in financial instruments (e.g. bonds, shares, futures or swaps) and financial contracts (e.g. mortgages or consumer contracts) in the EU. The Commission proposed new standards in September 2013 after it emerged that some benchmarks had been manipulated, resulting in multi-million euro fines on several banks in Europe and in the US.
"Manipulating benchmarks amounts to stealing from investors and consumers and undermines confidence in markets. I welcome the backing given by the Council today. The proposed regulation will ensure that we have benchmarks that are robust, reliable and representative," said Jonathan Hill, EU Commissioner responsible for Financial Stability, Financial Services and Capital Markets Union. "I hope we can make rapid progress on this proposal and that the European Parliament will agree its position as soon as possible.”
A benchmark is an index or indicator, calculated from a representative set of data or information, that is used to price a financial instrument or financial contract or to measure the performance of an investment fund. Examples include the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR), both benchmarks for interbank interest rates; oil price assessments and stock market indexes. In the financial industry, for example, benchmarks determine the prices of many derivative contracts; in consumers' daily lives, they determine the level of mortgage payments of millions of households in the EU.
The Commission adopted a proposal for a Regulation on benchmarks on 18 September 2013 with the aim of improving the functioning and governance of benchmarks produced and used in the EU and ensuring they were not subject to manipulation. The proposed Regulation implements and is in line with the principles agreed at international level by the International Organization of Securities Commissions (IOSCO) in 2012 and 2013. The Council today agreed on a negotiating mandate towards agreement with the European Parliament on that proposal. Once the European Parliament has agreed a position, EU co-legislators will negotiate in order to find a final agreement on the text.
When adopted, the new rules will contribute to the accuracy and integrity of benchmarks used in financial instruments and financial contracts by:
- ensuring that contributors to benchmarks are subject to prior authorisation and on-going supervision depending on the type of benchmark (e.g. commodity or interest-rate benchmarks);
- improving their governance (e.g. management of conflicts of interest) and requiring greater transparency of how a benchmark is produced;
- ensuring the appropriate supervision of very important, so-called critical benchmarks, such as Euribor/Libor, the failure of which might create risks for many market participants and even for the functioning and integrity of markets of financial stability.
The Commission expects a final agreement by the summer.
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