EU Gets Deal on Benchmarks Bill in Wake of Rigging Scandals

  • Rules `urgently needed' to stop manipulation, lawmaker says
  • `Significant' gauges face heaviest regulation under EU bill

European Union lawmakers reached a deal on a bill intended to bolster financial benchmarks in the wake of rigging scandals that hit some of the world’s biggest banks with billions of dollars in fines.

Benchmarks, which are used to price everything from student loans to mortgages, came under regulatory scrutiny after scandals tarnished their credibility. Lenders were exposed for rigging the London interbank offered rate, and an investigation into currency markets revealed participants colluded to manipulate the WM/Reuters fix. The penalties levied by global regulators in the foreign exchange probe alone have surpassed $10 billion.

“Benchmark fraud, most notably Libor and Euribor, affects everyone: how much interest you get on your savings, how much you pay in mortgage interest, how much interest you pay on your credit card, even car loans,” Cora van Nieuwenhuizen, the European Parliament’s lead negotiator on the bill, said in a statement. “They are all related benchmarks.”

Teams from the assembly and the Council of the European Union, which represents member states, reached a preliminary agreement on the legislation last night. Both bodies must formally approve the text for it to become law.

The bill imposes the heaviest regulation, including options for mandatory administration and contributions, on benchmarks deemed “critical,” or those used as a reference for valuing at least 500 billion euros ($529 billion) of securities. This category is open all types of benchmarks, including the interest-rate and currency gauges at the heart of recent rigging investigations.

‘Practical Options’

A second category of “significant” benchmarks facing more selective oversight kicks in at 50 billion euros. These are exempt from a number of provisions unless a supervisor decides to apply them. A third category of smaller benchmarks get the lightest treatment and aren’t subject to regulatory technical standards that will be drawn up by the European Securities and Markets Authority during the implementation stage.

“The final legislative text recognizes the specificities of the various types of benchmarks,” said Kay Swinburne, a British member of the assembly. “It fully regulates critical benchmark administrators, while ensuring that smaller benchmark administrators are exempt or only subject to a light system of oversight” by national authorities, she said.

Ensuring firms in Europe could continue to use benchmarks produced outside of the 28-nation bloc was another sticking point in the talks. The compromise includes “practical options for non-European benchmarks producers to maintain access to the EU,” said van Nieuwenhuizen. It also includes the option of showing compliance with the international standards for benchmarks, the principles set by the International Organization of Securities Commissions, she said.

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