EUROPEAN UNION: European Parliament backs new rules to prevent manipulation of financial benchmarks

Thursday April 28 2016

The European Parliament has adopted the proposed Regulation on financial benchmarks by a large majority in the plenary session following a political agreement by the European Parliament and the Council in November 2015.

A benchmark is an index or indicator used to price financial instruments and financial contracts or to measure the performance of an investment fund.

The Regulation seeks to ensure greater accuracy and integrity of benchmarks used in financial instruments and financial contracts by:

• ensuring that benchmark administrators are subject to prior authorisation and on-going supervision depending on the type of benchmark (e.g. commodity or interest-rate benchmarks);
• improving their governance (e.g. management of conflicts of interest) and requiring greater transparency of how a benchmark is produced;
• ensuring the appropriate supervision of critical benchmarks, such as Euribor/Libor, the failure of which might create risks for many market participants and even for the functioning and integrity of markets of financial stability.

It is intended that the new rules will improve the governance of such benchmarks produced and used in the EU in financial instruments such as bonds, shares and derivatives. It is also hoped that the Regulation will help to protect investors and consumers as benchmarks determine the value or performance of investments and the level of mortgage payments of millions of households in the EU.

The Regulation will enter into force following formal adoption by the Council, which is expected in May 2016 and publication in the official journal.

Click on the above link for further details.