A draft of the European Commission regulation, seen by the Financial Times, seeks to call time on the era of self-regulation for hundreds of benchmarks and moves direct supervision of Libor from London to the European Securities and Markets Authority, based in France.
Brussels’ draft plan requires regulators to authorise and oversee all published benchmarks used as a reference for exchange-traded financial instruments or financial contracts. This covers hundreds of benchmarks ranging from interest rates to most commodities and shipping.
While the vast majority of indices’ administrators will be supervised by their home country under the Commission proposal, those running Libor and Euribor and other “critical union benchmarks” are to be under the direct oversight of ESMA.
“Certain critical inter-bank interest rate benchmarks may have effects in and involve contributors, administrators and users in more than one Member State meaning that the supervision of such a benchmark by the competent national authority of the Member State where it is located will not be efficient and effective in terms of addressing the risks”, said the draft. “For critical union benchmarks, such as Euribor and Libor, it is therefore necessary that ESMA is empowered to supervise such benchmarks”, it adds.
Under the proposal, the Commission would be empowered to provide more detailed provisions for commodity and interest rate benchmarks at a later stage, as well as setting rules to ensure the governance requirements are “proportional”. ESMA would be given the power to force banks to participate in panels for Libor and Euribor or other critical benchmarks on the grounds that the failure of the indices “may have a significant impact on financial stability, market orderliness or investors”. Several banks have already quit the Euribor benchmark in spite of warnings that contributions may be mandatory in future.
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