Friday, 29 April 2016

The EU is a step closer to regulating financial benchmarks

Yesterday (28 April 2016) the EU Parliament approved by large majority the adoption of the proposed Regulation on financial benchmarks. The decision follows the political agreement reached by the Parliament and the Council in November 2015.

A benchmark is an index or indicator, calculated from a representative set of underlying data that is used as a reference price for financial instruments, financial contracts or to measure the performance of an investment fund. Well known examples of benchmarks are the LIBOR (London Interbank Offered Rate) and the EURIBOR (Euro Interbank Offered Rate). The EU Commission proposed the regulation of financial benchmarks in 2013, in the wake of the LIBOR-fixing scandal that shred light on shortcoming in the benchmark setting process and in the use of benchmarks.

The proposal has a significant consumer protection dimension, given that for example LIBOR is used for determining the price of mortgages and other consumer loans. The proposal aims to close the door for manipulation by subjecting benchmark administrators to prior authorization and on-going supervision; improving the governance of benchmark administrators (e.g. conflict of interest); requiring transparency in the benchmark setting process; and by ensuring supervision of critical benchmarks such as the EURIBOR and LIBOR.

The proposal now needs to be approved by the EU Council.

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