A consultation was announced on 24 September seeking views on whether five additional financial benchmarks should be brought into the new regulatory framework previously implemented for LIBOR. This framework makes it easier to take regulatory action against firms and individuals in relation to misconduct connected to this benchmark.
In particular, a new criminal offence was created by the Financial Services Act 2012 s.91 of making misrepresentations in the course of setting a “relevant benchmark” - currently limited to the LIBOR benchmark.
Developments in this area of financial regulation follow the criminal investigations into alleged manipulation concerning both LIBOR and FX benchmarks. Additionally, the gold price benchmark has been under scrutiny for some months and there has been recent enforcement action against a major bank in relation to trading behaviour around this benchmark.
The consultation is the result of interim recommendations submitted to the Treasury by The Fair and Effective Markets Review announced by the Chancellor in June, the terms of reference of which includes the making of recommendations as to the need for additional reforms in relation to benchmarks.
The interim recommendations of this Review include the extension, to a number of other benchmarks, of the new regulatory framework introduced following the LIBOR investigation.
The new benchmarks considered in the consultation are:
- Sterling Overnight Index Average (SONIA) and the Repurchase Overnight Index Average (RONIA), which both serve as reference rates for overnight index swaps;
- WM/Reuters 4pm London Fix, which is the dominant global foreign exchange benchmark;
- ISDAFix, which is the principal global benchmark for swap rates and spreads for interest rate swap transactions;
- London Gold Fixing and the LMBA Silver Price, which determine the price of gold and silver in the London market;
- ICE Brent futures contract, traded on the ICE Futures Europe (IFEU) exchange, which acts as the crude oil futures market’s principal financial benchmark.
Bringing behaviour in relation to benchmarks within the scope of specific criminal offences will not have retroactive effect but will apply to future behaviour if the Review’s recommendations are followed and these benchmarks join LIBOR as “relevant benchmarks” for the purposes of s.91. It is plain that there is a determined effort underway to remove the ambiguity that has previously existed in respect of the assessment of the lawfulness of behaviours relating to benchmarks and the trading activities that surround them.