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09 December 2015

Manipulation of market benchmarks: Council confirms agreement with EP on tougher rules

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The Permanent Representatives Committee has approved, on behalf of the Council, a compromise agreed with the European Parliament on new rules aimed at ensuring greater accuracy and integrity of benchmarks in financial instruments.

The regulation

The regulation will introduce a legally-binding code of conduct for contributors (of data) requiring the use of robust methodologies and sufficient and reliable data. In particular, it calls for the use of actual transaction input datawhere possible. But other data may be used if the transaction data is insufficient.

The scope of the regulation is broad, although benchmarks deemed to be critical will be subject to stricter rules, including the power for the relevant competent authority to mandate contributions of input data. The regulation will not apply to the provision of benchmarks by central banks, and, in certain circumstances, by central counterparties and public authorities. 

Administrators of benchmarks will have to apply for authorisation and will be subject to supervision by the competent authority of the country in which they are located.  If an administrator does not comply with the provisions of the regulation, the competent authority may withdraw or suspend its authorisation. Administrators will be required to have in place appropriate governance arrangements and controls to avoid conflicts of interest.

The European Securities and Markets Authority (ESMA) will coordinate the  supervision of benchmark administrators by national competent authorities. For critical benchmarks, a college of national supervisors including ESMA will be set up and take key decisions.  [...]

Separate regimes

However, specific regimes will apply to commodity, interest rate and regulated data benchmarks:

  • Commodity benchmarks of more than €100m are subject to the principles for oil price reporting agencies (PRA) issued by the IOSCO on 5 October 2012. These principles serve as a global standard for regulatory requirements for benchmarks. They were endorsed by the G20 in 2012 and cover governance structures, controls, integrity, and conflict management.
  • Interest rate benchmarks, which are more prone to conflicts of interest and data manipulation, are subject to additional requirements relating to input data and contributors as these benchmarks.
  • Regulated data benchmarks are exempt from some requirements as the nature of the data that is used in the determination of such benchmarks is less subject to manipulation and conflicts of interest.

Third country regime

Benchmarks provided by non-EU countries will be used by supervised entities in the EU through “recognition” or “endorsement” regimes, based on compliance with the IOSCO principles.

Moreover, a partial equivalence regime will facilitate equivalence with regard to third countries which do not intend in the foreseeable future to put in place a fully-fledged regime for all types of benchmarks, but which have put or may put in place specific rules for certain types of benchmarks or benchmark administrators, such as certain interest rate benchmarks. 

Full press release

© European Council

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