In the wake of the LIBOR-rigging scandal, and subsequent policy reviews, the UK Financial Services Authority (FSA) has proposed new rules and regulations for financial benchmarks.
The proposals announced Wednesday include: requiring benchmark administrators to corroborate submissions and monitor for any suspicious activity; that firms submitting data to benchmarks will be required to have in place a clear conflicts of interest policy and appropriate systems and controls; and, new controlled functions created for the administrator and submitting firms.
The FSA notes that its proposals follow the recommendations of both a review carried out by Martin Wheatley, managing director of the FSA and CEO designate of the new Financial Conduct Authority (FCA); and the UK Treasury’s proposed legislative amendments in designing an approach to regulating the setting of benchmarks.
In addition to the proposals for regulating benchmarks, the FSA is also seeking comments on ensuring the continuity of LIBOR and broadening participation in the rate. It notes that the Wheatley Review concluded that global markets benefit from the continuing participation of major firms in the LIBOR panels and that market integrity could be undermined if submitting firms were to leave them, and that larger panel sizes would benefit the accuracy and reliability of the benchmark.
So, the FSA is looking for feedback on how best to broaden the participation in LIBOR panels, including the possibility of requiring firms to contribute to the rate on a permanent basis.
“Confidence and trust are critical to financial markets. The disturbing events uncovered in the manipulation of LIBOR have severely damaged that trust. Today’s proposals will bring in clear rules for the setting and governance of benchmarks and are a key step to ensuring the integrity of LIBOR,” said Wheatley.
The consultation is open until Jan. 16, 2013; but the FSA will accept responses for the part of the document that takes the form of a discussion paper until Feb. 13, 2013.