EU Benchmarks Plan Too Demanding of Other Nations, Lawmaker Says

European Union lawmakers are set to overhaul draft rules for financial benchmarks on concerns that they could damage the functioning of markets by imposing excessively strict requirements on nations outside the bloc.

Plans set out by Michel Barnier, the EU’s financial services chief, for so-called equivalence assessments of whether non-EU countries meet its regulatory standards, are “not realistic,” Cora van Nieuwenhuizen, the EU parliament legislator leading the assembly’s work on the draft law, said in an interview.

“It’s hard to say how big an impact the commission’s approach to third countries would have, but it’s clear that it would create a lot of difficulties by preventing EU banks and other companies using benchmarks set outside of the EU,” van Nieuwenhuizen said.

At least a dozen regulators on three continents are investigating whether traders in the world’s largest financial market colluded with counterparts at other firms to manipulate benchmarks used by money managers and pension funds to determine what they pay for foreign currency. More than 25 traders have been fired or suspended across the industry.

Barnier made proposals last year to toughen governance and oversight of rate-setting, including the setting up of groups of national supervisors to police “critical benchmarks” such as the London interbank offered rate, and rules to tackle conflicts of interest within banks and other firms that submit data.

His plans are being scrutinized by national governments and the European Parliament, which can amend them and must give their approval before the measures take effect.

Legal Framework

Barnier proposed that traders could still be allowed to make use of benchmarks set by administrators based outside of the EU provided that the European Commission, the bloc’s executive arm, “has adopted a decision recognizing that the benchmark provider is located in a jurisdiction with a legal framework and supervisory practice which are equivalent” to EU standards.

“Not only is no other country currently adopting equivalent rules to the EU on this, it’s worse; no country is planning to become equivalent. So we have to come up with an alternative,” said van Nieuwenhuizen, a Dutch member of the assembly’s Liberal group.

Van Nieuwenhuizen said a level playing field is needed for all industries to avoid a loss of European competitiveness.

“We need creative thinking to come up with something more realistic,” she said.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE