The UK’s FSA Finalized Rules and Regulations for Financial Benchmarks
| Date Published | 3/29/2013 |
| Author | Marja Hoek-Smit |
| Theme | |
| Country | United Kingdom |
The UK’s
Financial Services Authority (FSA) has finalized new rules and regulations for
financial benchmarks, initially focused on the London Inter-Bank Offered Rate (LIBOR),
days before
the FSA is due to be replaced by two separate regulators, the Financial conduct
authority and (FCA) and the Prudential Regulation Authority (PRA).
Benchmarks
are used across financial markets in a broad range of activities. The total volume of financial
contracts that reference LIBOR is estimated to be at least $300 trillion. Like
other benchmarks, LIBOR has historically been set by the financial markets themselves, and
existed outside of any regulatory regime. In the case of LIBOR, this
industry-led approach has failed. On 2 July 2012 the Chancellor of the
Exchequer commissioned a review of the structure and governance of LIBOR and
the corresponding criminal sanctions regime. On 28 September 2012 ‘The Wheatley
Review of LIBOR’ was published, which included a 10-point plan for
comprehensive reform of LIBOR including that LIBOR activities should be brought
within the scope of statutory regulation.
After
consultations, the Government has now inserted provisions into the Financial
Services Act 2012 to allow the regulation of activities in relation to
benchmarks. The legislation will commence on 1 April 2013.
A key element of the final rules
is that the new administrator will be required to play a much more active role
in corroborating submissions and monitor for any suspicious
activity. Other
clarifications and adjustments include the requirement to have two independent
non-executive directors on the LIBOR administrator's oversight board, reduced
annual fees and record-keeping requirements in line with the European Markets
in Financial Instruments Directive.
Alongside the consultation paper,
the FSA published a cost-benefit analysis of the proposals, which estimated
that the new Libor administrator would face annual costs of up to £1 million
($1.5 million), in addition to start-up costs of around £1.6 million.
Submitting banks will also face costs of around £545,000 a year and one-off
costs of around £2.5 million.
Martin Wheatley, CEO designate of the FCA, said: “Confidence
and trust are critical to financial markets. That trust has been eroded by the
LIBOR scandal and the recent enforcement action against several banks. These
new rules today should help restore that faith and bring integrity back to
LIBOR.”
Link to FSA Policy PS13/6: The regulation and supervision of benchmarks - Click Here