Following misconduct related to the London Inter-Bank Offered Rate (LIBOR) benchmark, Britain’s non-bank financial services regulator, the Financial Conduct Authority (FCA), was given powers to regulate benchmarks specified by the Government in April 2013. Currently, LIBOR is the only regulated benchmark, despite the FX benchmarks having been the subject of regulatory and criminal investigations during the past year, culminating in $4.3 billion in fines across six banks, and probes by law enforcement agencies with the backing of senior government officials into the activities of bank FX traders as a result of the manipulation of such rates.
The British Government’s Fair and Effective Markets Review (terms of reference) has recommended an additional seven benchmarks that should be regulated by us. The Treasury subsequently consulted on the legislative measures to specify further benchmarks to be regulated by us and has published feedback from the consultation process.
The benchmarks that are being brought into the regulatory scope are:
Sterling Overnight Index Average (SONIA)
Repurchase Overnight Index Average (RONIA)
WM/Reuters (WMR) London 4pm Closing Spot Rate
London Gold Fixing (soon to be replaced by the LBMA Gold Price)
LBMA Silver Price
ICE Brent Index
The FCA anticipates that it will begin to regulate these benchmarks from April 2015.
These changes will affect the administrators of and firms that submit to any of the seven benchmarks (where the benchmark has regulated submitters). These changes will be of interest to firms that use these benchmarks as part of their ongoing business. They will also be of interest to electronic trading platforms in particular and similar entities more generally. These changes may be of interest to other financial institutions with a significant profile in global markets referencing benchmarks. They may also be of indirect interest to consumers.
The FCA is seeking industry perspective with regard to this, and requests that replies to the consultation paper that it has published should be submitted by January 30, 2015.
To download the consultation paper, click here.