This week’s proposal from the EU garnered headlines like “EU plots to grab control of Libor from London”. Such sensationalism simultaneously leads to over-reaction and under-reaction. Libor is a known problem, but there are questions over other market indices for oil, steel, gold and other commodities. Five years into financial crises, why shouldn’t the EU set out guidelines for robust indices upon which most markets depend? Yet I worry about state control and auditing of benchmarks. Some bankers claim they connived with regulators on Libor to look stronger than they were. Instead I would suggest a more “English” approach – a published standard on index governance and management, independently audited on quality, accuracy, timeliness and distribution in a competitive market. And the under-reaction? These financial reform proposals should be coming from London. If we’re losing our intellectual leadership, perhaps we do deserve to lose the “L” in Libor. Professor Michael Mainelli is chairman of Z/Yen Group.
This is not just about Libor. EU standards for benchmarks are being created that would cover Libor, Euribor and a host of other benchmarks. The suggestion is that, when the contributors are from more than one member state, or where the effects of a mishap are widespread, then there is an oversight role for the European Securities and Markets Authority (ESMA). It’s not too difficult to envisage that the standards for an interbank offered rate end up similar to the UK’s – I am told a lot of “borrowing” of UK work has happened anyway. So, the controversial bit is: should ESMA have a role and how deeply? The ESMA having a role in general is correct due to the EU-wide impact. Participants will probably not be greatly affected. There might be a squabble over fees and the UK feels put out because it has conducted in-depth investigations, unlike the EU or ESMA, and therefore has more experience. But hopefully, there will be ways to smooth over that inconsistency – I can think of amendments already. Sharon Bowles is Liberal Democrat MEP for South East England.