New rules to address the concerns raised by the LIBOR and EURIBOR rate-fixing scandal came closer after the Members of European Parliament (MEPs), in the Economic and Monetary Affairs Committee (ECON) voted through a set of amendments to the European Commission’s proposals. The indices are used for a wide range of market pricing and so have particular impacts on buy-side participants such as investment managers.
The changes will require benchmark administrators to put in place control procedures to prevent conflicts of interest and require strict conduct rules for contributors, including verifiable data.
The rules will cover indices defined as ‘critical’ with systemic significance over financial instruments worth more than EUR500 billion. National indices will be overseen by national authorities with the Europrean Securities and Market Authority (ESMA) taking decisions over those with wider impact. Requirements will include record keeping, administrator oversight and auditing.
During negotiations between the Members of European Parliament (MEPs), benchmarks based on regulated data including securities markets indices, oil price reports and other commodity indicators were exempted from the ‘critical’ definition and so would not be subject to full requirements.
Limits on usage of non-European indices were also removed by the MEPs fearing a disadvantage to European firms, instead they will need to demonstrate compliance with international codes of conduct in place through the International Organization of Securities Commissions (IOSCO).
However, the vote was notunanimous and there is potential for further negotiations before the full MEP vote scheduled for May and discussions with Member states who favour more discretion for national authorities.