IOSCO published its second Consultation on Principles for Financial Markets Benchmarks in April 2013.  The Consultation follows on from, and builds upon, its previous Consultation on Financial Benchmarks published on 10 January 2013.

IOSCO’s objective is to create an overarching framework of principles for benchmarks used in financial markets with specific emphasis on principles that will address conflicts of interest in the benchmark setting process, transparency and openness to consider issues relating to transition.  The IOSCO principles are not intended to supersede existing laws, regulations or regulatory or supervisory frameworks.  Instead they are intended to provide guidance to administrators, submitters and regulators and supplement existing IOSCO principles.

Following IOSCO's January 2013 review, certain broad, generic risks to the credibility of benchmarks arising from vulnerabilities in benchmarks’ methodology, transparency and governance arrangements were identified. Building on this review, the Consultation Report sets out broad principles for financial benchmarks in the areas of:

  • Governance
    • Overall responsibility of the administrator for the benchmark determination process
    • Oversight of third parties by the administrator
    • Conflicts of interest for administrators
    • Control frameworks for administrators
    • Internal oversight of benchmark determination process by administrators
  • Quality of the Benchmark
    • Benchmark design
    • Data sufficiency
    • Hierarchy of data inputs
    • Periodic review
  • Quality of the Methodology
    • Changes to the methodology
    • Transition to new benchmark
    • Submitter code of conduct
    • Internal controls over data collection
  • Accountability
    • Complaints procedure
    • Audits
    • Audit trail

Following the publication of the final principles, IOSCO intends to review, within an 18-month period, the extent to which the principles have been implemented by obtaining the input of stakeholders, market authorities and, as appropriate, benchmark administrators.