City hits out at Europe’s bid to take over Libor

Tim Wallace
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FRENCH regulators know less about Libor than their London counterparts and would not be able to run the key interbank lending rate as well, business group TheCityUK said yesterday.

The European Banking Authority (EBA) and European Commission want to move the benchmark to Paris under the control of the European Securities and Markets Authority (Esma).

It is part of a wider plan to shake up the index after banks and brokers were found to be rigging the rate to make more money from their trading positions or to hold down the rate to disguise rising funding costs in the financial crisis.

Barclays, RBS and UBS have all been fined hundreds of millions of pounds each for fiddling the rate.

However the British authorities argue they have already taken major steps to restore trust in Libor promptly.

It has been taken off the British Bankers’ Association, which used to run the rate. The Financial Conduct Authority (FCA) has scrapped many Libor indices in less used currencies and at unusual maturities, leaving only the most liquid rates.

Baroness Hogg is deciding who will be the next controller of the rate – potentially an existing market data provider.

City groups agreed the rate has already been improved and attacked the idea of taking it to France.

“The supervision of Libor indices and benchmarking should be carried out by those with the closest knowledge of the market and who demonstrate the best market understanding,” said TheCityUK’s Chris Cummings. “In our opinion, that is the FCA – especially when its location is considered. London is a global financial centre, a hub for financial and related professional services and a major European hub for international finance.”

■ The European Securities and Markets Authority (Esma) wants to control benchmarks like Libor, moving the interbank rate from London to Paris.

■ Esma and the European Banking Authority (EBA) agree with many of the UK’s plans, such as basing the benchmark rates on real transactions in liquid markets.

■ But it wants greater European oversight as data from the Eurozone is used, and markets in the Eurozone use the data.

■ The group believes centralised European control will also give greater continuity to the indices over time.

■ Even proprietory indices – that is, private ones complied for clients, not the public – could be covered by the rules.

■ If governance is not strong enough, the indices will be banned from being linked to products like mortgages.

■ Retail investors in particular could be given greater access to past data and the performance of indices to assess their historic performance.