FSB: Progress report on the oversight and governance framework for financial benchmark reform

29 August 2013

The FSB will promote consistency in these assessments to ensure that national/regional authorities adopt a coordinated approach. It will also promote widespread support, dissemination and adoption of any principles and good practices that emerge regarding the benchmark-setting process.

To take the work forward, the FSB has established a high-level Official Sector Steering Group (OSSG) of regulators and central banks. The OSSG is responsible for coordinating and maintaining the consistency of reviews of existing interest rate benchmarks and for guiding the work of a Market Participants Group which will examine the feasibility and viability of adopting additional reference rates and potential transition issues. The Group is co-chaired by Martin Wheatley, CEO of the UK’s Financial Conduct Authority, and Jeremy C. Stein, Member, Board of Governors of the Federal Reserve System and comprises senior representatives of central banks and regulatory agencies from the home markets of the most widely used interbank benchmark rates or that oversee the banks that are leading contributors to those benchmarks. The FSB has decided that the OSSG shall focus its initial work on the interest rate benchmarks that are considered to play the most fundamental role in the global financial system.

The FSB asked the OSSG to review the standards and principles for sound benchmarks developed by the relevant standard setting bodies, with a view to recommending to the FSB whether adoption or endorsement of a single consolidated set of principles would be desirable. Following the recommendation of the OSSG, the FSB has endorsed the IOSCO Principles for Financial Benchmarks (IOSCO Principles) published in July 2013 which cover the important issues of benchmark governance, integrity, methodology, quality and accountability.

The OSSG’s future work programme includes:

• Recommendations for conducting assessments of the governance and processes that relate to existing interest-rate benchmarks using the endorsed IOSCO Principles. Assessing the relevant benchmarks against internationally agreed standards is intended to demonstrate to the market and the general public that the deficiencies in benchmark design and the absence of robust governance processes that contributed to past abuses involving these benchmarks are being effectively addressed. The FSB has accepted the OSSG recommendation that IOSCO be commissioned to conduct an initial review of the most widely used benchmarks against its Principles. The OSSG will report back to the FSB on the outcome of these reviews by June 2014. The assessment process should provide for public dissemination of its findings.
• Encouraging the private sector to identify additional benchmark rates. As requested by the FSB, the OSSG is establishing a Market Participants Group (MPG). The MPG is chaired by Darrell Duffie, Professor of Finance at Stanford University. The Vice-Chair is Stephen O’Connor, the Chair of ISDA. The composition of the MPG seeks to achieve a balance among currencies, jurisdictions, types of financial intermediary and the buy-side and sell-side. The terms of reference for the group fall into two main areas:
  • Proposing options for robust reference interest rates that could serve as potential alternatives to the most widely-used, existing benchmark rates. The proposed rates should be consistent with the IOSCO Principles.
  • b. Proposing strategies (testing, protocols, and timing) for any transition to new reference rates and for dealing with legacy contracts in the national or regional currency. This should include identifying problems that could arise in moving to new benchmark rates, and how these can be addressed.

The MPG has been asked to provide an interim report and draft recommendations to the OSSG by end-December 2013 and its final report to the OSSG by mid-March 2014.

The OSSG will assess the feasibility and viability of the reformed and alternative benchmark rates proposed by the MPG, and identify any issues that may arise in transitioning to reformed or new proposed interest rate benchmarks and make recommendations for addressing them. Where appropriate, the OSSG will set out methods for encouraging a transition to the alternative/complementary rates recommended by the MPG.

The OSSG will also undertake any other tasks requested by the FSB to support the strengthening of interest rate benchmarks. The OSSG will report to the FSB Steering Committee and Plenary on its findings. The OSSG will provide its analysis and recommendations to the FSB by June 2014.

Progress report

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