European Commissioner, Michel Barnier, gave a press conference today to discuss draft legislation on market benchmarks that will see banks fined as much as 10 per cent of their yearly sales for failure to safeguard against benchmark rigging.
The legislation will enable regulators to force banks into participating in benchmark setting panels, following a series of scandals that started with the London Interbank Offered Rate, or Libor.
Mark Compton, partner at law firm Mayer Brown, comments:
There was strong resistance from the UK on an earlier version of the proposal which called for direct supervision of critical benchmarks to be shifted to ESMA so the removal of this requirement could be seen as a win alongside the recent opinions in relation to the UK’s challenges to the short selling regime and FTT. The regulation will nevertheless see a step change in the regulation of all benchmarks, not just LIBOR and EURIBOR, where previously unregulated benchmark administrators and contributors will be subject to closer scrutiny.
Whilst the European Commission is undoubtedly aiming to be more aggressive in how it deals with the repercussions of LIBOR scandals there are still some problems that will need to be addressed before this comes into force; for example, requiring price reporting agencies to make their source sign a code of conduct or mandatory contribution and how that would work in principal. Since the FSA drew attention to the fact that false or misleading submissions to benchmarks would be market abuse back in 2002 some participants had consciously pulled out of or heavily restricted their involvement in benchmark setting as a sensible risk control and might be viewing mandatory contributions and the associated additional compliance costs wryly.