EP backs benchmark setting rules: MEPs from the Economic and Monetary Affairs Committee have supported proposals for rules to end conflicts of interest in setting “critical” benchmarks, such as LIBOR and EURIBOR, which influence financial instruments and contracts with an average value of at least €500 billion and could thus affect the stability of financial markets across Europe. Under the proposed rules:

  • the setting of critical benchmarks that affect more than one country would be overseen by a “college” of supervisors, including ESMA and other competent authorities;
  • critical benchmark-setting data would have to be verifiable and come from reliable contributors who are bound by a code of conduct for each benchmark;
  • contributors, such as banks contributing data needed to determine a critical benchmark, would have to notify the benchmark administrator and the relevant authority if they wished to cease doing so, but would nonetheless have to continue doing so until a replacement were found;
  • critical benchmark administrators would have to have a clear organisational structure to prevent conflicts of interest, and be subject to effective control procedures;
  • the final decision on whether a benchmark is “critical” would be up to ESMA and national authorities, but a national authority could also deem a benchmark administered within its territory to be critical if it had a “significant” impact on the national market; and
  • all benchmark administrators would have to be registered with ESMA and would have to publish a “benchmark statement” defining precisely what their benchmark measures and to what extent it is reliable. They would also have to publish or disclose existing and potential conflicts of interest and meet accountability, record keeping, audit and review requirements.

The draft text will be put to a vote by EP as a whole to consolidate its position before its three-way negotiations with EU Member States and the Commission. (Source: Economic Affairs MEPs Target Conflicts of Interest in Benchmark Setting)