Alternative Investment Management Association
The recent alleged manipulation of LIBOR, EURIBOR and TIBOR has highlighted the importance and vulnerabilities of indices used as benchmarks. The integrity of benchmarks is central to the pricing of many financial instruments - such as IRSs, FRAs - and also plays an important role in risk management. It is considered that any doubts about the accuracy and integrity of indices could undermine market confidence, cause significant among consumers and investors, as well as distort the real economy. A number of initiatives have already been launched globally to help deal with issues in relation to benchmark manipulation, including the UK Wheatley Review of LIBOR and IOSCO work relating to oil price reporting. IOSCO, in particular, has undertaken a consultation exercise to create a set of internationally recognised principles upon which individual national regimes can be based. A final set of principles was published in July 2013.
At EU level, the European Commission (EC) amended its MADII/MAR proposals to clarify the unequivocal illegality of any manipulation of benchmarks, subject to administrative or criminal sanctions. It, nonetheless, believes that further work beyond sanctioning is necessary and is currently considering a potential framework directive which will harmonise the method of production and use of benchmarks across the EU.
In September 2012, the EC issued a Consultation which sought to assess how to improve the production and governance of benchmarks at so that they accurately reflect the economic realities that they are intended to measure and are used appropriately. AIMA submitted a response. A legislative proposal was published by the EC on 17 September 2013, which is now being considered by the European Parliament (EP) and Council of the European Union before inter-institutional Trialogues. The EP has set itself an ambitious timetable within which to finalise their position, bearing in mind the EP elections that are due to take place in 2014.
Prior to finalisation of the EU Proposal, the EBA and ESMA have published principles to be applied by submitters, administrators and users of benchmarks in the benchmark setting process.
IOSCO Principles for Financial Benchmarks (July 2013)
ESMA and EBA Principles on Benchmarks (June 2013)
IOSCO Consultation on Financial Benchmarks (January 2013)
AIMA Summary of EC Proposed Regulation on Benchmarks (October 2013)
The Wheatley Review of Libor - Final Report (September 2012)