Following on from the publication of its proposals in September 2012, the Global Financial Markets Association (“GFMA”) has now released its final framework of principles in respect of conducting benchmark price assessment. The principles focus on enhancing market integrity and transparency through sponsors (i.e., entities or groups which develop and direct the determination, publication and licensing of a benchmark) meeting three primary obligations when designing, operating and publishing benchmarks:
- governance – ensuring that there is a single point of accountability and that roles and responsibilities are clearly defined;
- design and methodology – ensuring that, amongst other things, the benchmark has a robust design which provides an accurate measure of the market and incorporates (where possible) real transaction data; and
- control infrastructure – ensuring that a resilient infrastructure is in place by requiring periodic review and the maintenance of mechanisms which provide continuity of the benchmark under duress.
The GFMA principles are only a first step towards improving market confidence in benchmarks. Next steps include ensuring the broadest possible agreement from all stakeholders through promoting awareness and understanding of the principles in meetings and calls and attempting to encourage stakeholders to hold each other accountable by refusing to do business with each other in the event of breaches of the principles. Further discussion and consultation with regulators, government entities and industry bodies is required in order to review the principles and generate feedback. It is hoped that the principles will be incorporated by regulators and governments as they take further strides to co-ordinate an international approach. Such efforts to date include:
- consultation on the functioning and oversight of oil price reporting agencies by IOSCO in March 2012;
- review of the framework for setting and governing LIBOR by the designated new chief executive of the Financial Conduct Authority, Martin Wheatley (August 2012);
- European Commission consultation seeking views on possible new regulations governing the creation and use of indices which serve as benchmarks (September 2012);
- IOSCO are also currently looking at benchmarks generally and it is expected that a consultation will be released in January 2013; and
- ESMA are preparing some interim principles for issuance at the EU level in respect of benchmarks generally. Again, these are expected to be published in early 2013.