On 2 July 2014, the House of Commons Treasury Committee published oral evidence given by various regulatory and industry specialists on the manipulation of benchmarks. The evidence was intended to provide an update on the main concerns for the FCA, and also set out upcoming proposals to tackle the manipulation of benchmarks, particularly in light of the regulation of LIBOR in the UK from April 2013.
Of particular note were the following points:
- David Bailey, Head of Markets Infrastructure and Policy at the FCA, emphasised that benchmark manipulation could be minimised by having robust fixing processes and appropriate governance and oversight. Specifically, where benchmarks meet the standards set out in the Wheatley Review (published September 2012), by IOSCO and the Financial Stability Board, the likelihood of conflicts of interest that an individual benchmark might face would be reduced;
- David Bailey confirmed that the FCA was undertaking a review of systems and controls of submitting banks following the Wheatley Review, and there would also be further thematic work done on controls around trader behaviour in 2015;
- David Bailey stated that the list of benchmarks to be brought into the regulatory perimeter under the Fair and Effective Market Review is being considered by the FCA, BoE and HM Treasury;
- in relation to IOSCO, David Bailey confirmed that in a situation where half of an IOSCO principle was breached, but the other half was not, IOSCO “itself does not have any ability to take any enforcement action. It has no statutory responsibilities”. However, if it was an IOSCO principle that was not being followed for an unregulated benchmark, then there is no statutory ability to take action against the benchmark administrator. This is significant – Bailey stated that only benchmarks under the FCA’s regulatory remit will be exposed to FCA action;
- David Bailey confirmed that Martin Wheatley and the Financial Stability Board is reviewing the major interest rate benchmarks (LIBOR, EURIBOR and TIBOR) against the IOSCO principles and will report back later in 2014;
- David Bailey proposed that there is a shared responsibility for both the submitters and the administrators to meet required standards, and not only the administrators; and
- Finbarr Hutcheson, the president of ICE Benchmark Administration (administering LIBOR since taking over from the BBA) and CEO of NYSE Liffe, stated that LIBOR received 611 submissions on a daily basis, and with each submission, the bank indicates whether it was based on expert judgment, interbank unsecured funding (the sort of transactions ICE prefers) or transactions related to that market but not directly in that market.
View Manipulation of benchmarks, 2 July 2014