Brussels, 25/09/2012 (Agence Europe) - At a public hearing on the LIBOR scandal organised by the European Parliament's Economic and Monetary Affairs Committee on Monday 24 September 2012, US and EU regulators said they favoured the idea of introducing rules to force bodies that produce financial benchmarks to use real data in their calculations, where possible.
“I believe it is critical that benchmark rates rely upon observable transactions”, said the head of the US derivatives regulation committee (CFTC), Gary Gensler, because “a rate that relies on observable transactions is anchored by the reality of that price discovery. A rate that relies on observable transactions has a lit path to credibility. A rate that relies on observable transactions is less vulnerable to misconduction”. With regard to LIBOR, the index rate benchmark produced by the British Banking Association, Gary Gensler said that even if governance of the bodies that set inter-bank benchmarks were reformed and conflicts of interest restricted: “We need to address the fundamental issue - that the underlying market for inter-bank unsecured borrowing has largely diminished, so much so that there may not be enough observable transactions in the unsecured interbank marketplace for people acting in good faith to accurately estimate a rate for submission”. LIBOR is in the news after Barclays Bank admitted manipulated information provided to set the benchmark.
EU Internal Market Commissioner Michel Barnier said the idea of requiring benchmarks to be calculated using observable transactions was a serious option, but it would be necessary to ensure that it worked. At the end of July this year, the Commission unveiled a draft revision of the EU market abuse rules in order for manipulation of financial benchmarks to be made a crime (see EUROPE 10663). The economic and monetary affairs committee may discuss the matter early next month. EP rapporteur Arlene McCarthy (S&D, UK) has promised to work on drawing up a transparent, robust, regulatory system based on transactions in real time.
EU Competition Commissioner Joaquín Almunia pointed out that his department was carrying out an investigation into the manpulation of inter-bank benchmarks. Calling for an end to “casino capitalism” and criticising the irresponsible attitude taken by banks and financial wheelers and dealers, he said that any fines levied would be high and could be increased further for serious misbehaviour. (MB/transl.fl)