05 December 2012

FSA consults on changes to the regulation and supervision of benchmarks

The FSA has considered both the Wheatley Review recommendations and the Treasury’s proposed legislative amendments in designing an approach to regulating the setting of benchmarks. At least initially, the only ‘regulated benchmark’ in the UK will be Libor. However, the new regime provides a framework for regulation that can be extended to cover additional benchmarks in the future, were the government to consider it appropriate to do so.

  The proposals include:

• benchmark administrators will be required to corroborate submissions and monitor for any suspicious activity;
• those submitting data to benchmarks will be required to have in place a clear conflicts of interest policy and appropriate systems and controls. This will result in clear, robust rules which will give firms and their employees comfort that the regulatory regime clarifies what is expected of them; and
• two new significant influence controlled functions created under the FSA’s Approved Persons Regime for the administrator and submitting firms.

The FSA also seeks comments on ensuring the continuity of Libor and broadening participation in the rate. The Wheatley Review concluded that global markets benefit from the continuing participation of major firms in the Libor panels and that market integrity could be undermined if submitting firms were to leave them. In addition the Review noted that larger panel sizes would benefit the accuracy and reliability of the benchmark.

As a consequence, the FSA has asked for feedback on how best to broaden the participation in Libor panels, including the use of the FCA’s powers to require firms to contribute to the rate on a permanent basis which the government is proposing to grant. As set out in chapter 4 of the Consultation Paper, it would be beneficial to the quality of the Libor benchmark, and therefore wider market integrity, if firms were to review their Libor participation against the FCA’s suggested criteria and approach the administrator with a view to submitting to Libor Panels if they concluded that this was appropriate.

Martin Wheatley, managing director of the FSA and CEO designate of the FCA, said: “Confidence and trust are critical to financial markets. The disturbing events uncovered in the manipulation of Libor have severely damaged that trust. Today’s proposals will bring in clear rules for the setting and governance of benchmarks and are a key step to ensuring the integrity of Libor.”

Press release

Consultation paper

See also The regulation and supervision of benchmarks

© FSA - Financial Services Authority