Norway Seeks Nibor Overhaul as Probe Fails to Disprove Rigging

Norway’s financial watchdog recommended an overhaul of practices shaping its benchmark interbank rate, after the regulator said a probe couldn’t disprove claims of manipulation.

The Financial Supervisory Authority’s decision follows an investigation of the Norwegian interbank offered rate after bankers outside the country claimed Nibor was being rigged locally. Documents released by the central bank in January revealed e-mailed complaints from traders around the world going as far back as 2010, adding urgency to a probe that was started in December.

“The Financial Supervisory Authority of Norway has found no evidence of rigging, or attempted rigging, of Nibor, but cannot disprove rigging either,” the financial regulator said today on its website. “The Nibor framework should be strengthened and made more robust to manipulation. It also needs to be more transparent to allow for subsequent testing and oversight.”

The Finance Ministry will review the FSA’s comments and respond before “the summer,” it said on its website today.

In the correspondence released in January, a June 2010 e-mail by a banker, whose name was blacked out, said Nibor fixings “seem to bear no resemblance to market realities,” adding he suspected “fixings that resembled market abuse.”

International Scrutiny

Interbank rates came under international scrutiny after Barclays Plc was fined a record 290 million pounds ($444 million) in June for attempting to rig the London interbank offered rate and Euribor. At least 12 banks including Deutsche Bank AG are being investigated for manipulating Libor. Criticism from lawmakers and the Bank of England forced the resignation of Barclays’ top three executives, including Chief Executive Officer Robert Diamond.

In Scandinavia, Denmark has conducted a probe of the Copenhagen interbank offered rate amid speculation it was manipulated during the financial crisis, while Sweden is also reviewing its equivalent rate, Stibor.

Norway’s Finance Ministry asked the financial regulator in December to check whether Nibor accurately reflects unsecured loan rates between banks and whether fixings are sufficiently robust. Nibor was linked to as much as 5.8 trillion kroner ($1 trillion) in derivatives in April 2010, according to central bank documents.

More Oversight

Nibor, which is used as a benchmark for mortgage rates, corporate bond yields and derivative contracts, is calculated as an average of rates published by a panel of banks for various maturities, excluding low and high quotes, according to Finance Norway, which represents banks in the country. The panel is made up of DNB ASA, Danske Bank A/S, Svenska Handelsbanken AB, Nordea Bank Norge ASA, SEB AB and Swedbank AB.

“The responsibilities of Finance Norway and the Nibor panel banks must be clarified,” the FSA said. “The calculation of Nibor will be subject to increased attention and monitoring going forward, in part through the FSAN’s supervision of the Nibor panel banks.”

The regulator also called for requirements on the panel banks concerning publication, documentation, record-keeping and controls with respect to quotes and underlying assessments should be established. It urged Finance Norway to establish a supervisory body and an investigatory body.

In a separate letter dated March 20 and published today, Norges Bank informed the FSA that it backed further clarification of Nibor rules to avoid conflicts of interest in banks contributing to the rate.

Norges Bank won’t have a role in the actual calculation of Nibor or its supervision. “Involving the bank could generate uncertainty as to its role as the central bank,” it said.

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