14 February 2013

ESBG position: ESMA/EBA Consultation Paper on principles for benchmarks-setting processes in the EU

It notes that this Consultation forms part of the joint initiative taken by the Boards of Supervisors of EBA and ESMA to enhance cooperation among the competent authorities and to instigate measures in order to sustain and improve the credibility of the Euribor benchmark. The other elements of the initiative are a joint set of recommendations related to Euribor covering governance and operational issues as well as formal EBA recommendations to national authorities on the supervisory oversight of banks participating in the Euribor panel.

ESBG welcomes this joint initiative and believes that the intervention of and the involvement of the European Supervisory Authorities in the Euribor benchmark-setting procedure can only be beneficial for all stakeholders in the current environment.

It is however more sceptical about the need for EBA/ESMA to introduce general principles for benchmarks-setting processes in the EU and to have these in place by April 2013 (see response to question 2 in link below). ESBG suggests that it may be very challenging to adopt a set of principles that are robust, fair and proportionate for all benchmarks, covering all asset classes, in such a short period of time. Furthermore, it is of the opinion that Benchmarks-Setting Processes is a topic that is global by definition and that as such coordination at an international level with organisations such as IOSCOcan only be beneficial. IOSCO is also working on this topic at present and has issued its own consultation on Financial Benchmarks on the same day as EBA/ESMA. Ideally, ESBG would welcome the publication of a clear set of definitions, governance and operational principles that are endorsed by the relevant authorities at a European and international level. This would facilitate matters and also rationalise compliance operations and processes for all stakeholders and market participants.

ESBG understands that EBA/ESMA are concerned about benchmarking processes at EU level and about the reputational contagion and impact on integrity and market confidence suffered by Euribor as a result of alleged and subsequently recognised manipulation of financial benchmarks such as Libor and Tibor. It does however believe that the two-faceted approach of issuing a joint set of recommendations related to Euribor covering governance and operational issues as well as the recommendations issued by EBA on the supervisory oversight of activities related to banks’ participation in the Euribor panel is a strong and powerful signal that the supervisory authorities are playing a proactive role in shoring up market confidence in the reliability and credibility of Euribor. In this context ESBG would also like to point out that Euribor–EBF has stated publicly its strong willingness to work with the supervisory authorities to improve the governance and operations of the Euribor rate-setting process and has followed up this statement with concrete actions. ESBG also notes that EBA and ESMA aim to review the implementation of their joint recommendations by Euribor-EBF no more than six months after they have been agreed upon by the latter.

Accordingly, in the interest of market credibility and stability, it is suggested that Euribor and the public authorities should work hand in hand to take the necessary measuresto shore up confidence in the Euribor index. This is important as the index connects a large number of and wide range of market participants and is of vital importance for contracts amounting to a notional value of hundreds of trillions of euro. It is also a key interest rate benchmark, which is of particular importance for the transmission of the euro area’s monetary policy and, according to the European Central Bank, has taken on a social function and is now a public good.

Furthermore the lessons learnt by EBA/ESMA over the coming months from setting up best practice models of governance and accountability, methodology, transparency and supervision as applied to such an important index as the Euribor should be an extremely valuable and timely contribution to the wider European and International debate on establishing benchmarks-setting processes for all types of financial benchmarks covering all types of asset classes going forward.

Full position paper

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