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The Commission letter, dated February 26, is a response to a letter sent by the UK’s House of Commons last December that questioned the need for a regulation on financial benchmarks at the EU level. The Commission wants to introduce a single set of rules governing the use of financial benchmarks in the wake of the manipulation of key rates by large financial institutions.
But in its December statement, the House of Commons' European Scrutiny Committee said the proposal was too broad to cover the variety of benchmarks available across Europe, would impose “significant” burdens on users and administrators of benchmarks that are not widely used, and does not properly cover the use of non-EU benchmarks in the region. It also noted that the UK had undertaken its own reforms for benchmarks through the Wheatley Review and contributions to IOSCO's principles for financial benchmarks.
Last week's response from the Commission said, however, that the “patchwork of divergent national rules would result in an inconsistent and uncoordinated approach” and that few benchmarks are entirely national in their production and use. It added that without a harmonised EU regime, the risk of benchmark manipulation would not be effectively addressed.
Rob Moulton, partner at law firm Ashurst, said: “This is an indication that the UK regards the benchmark regulation as a real priority and this latest action has drawn the battle lines". Moulton added that the latest UK concerns over EU financial rules need to be considered in the context of other challenges that have been made over the last year. He said: “It seems as though the purpose of this letter was to draw the battle out into the open. It is saying that the UK is watching, has been prepared to sue to make its point in the past and is prepared to do so again.”
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