EU lawmakers back rules to stop rigging of market benchmarks
By Huw Jones
LONDON (Reuters) - European Union lawmakers have given their initial backing to a draft EU law making it harder to rig market benchmarks, while adding changes to help quell U.S. concerns about the rules.
The draft was proposed after banks were fined for attempting to manipulate the Libor interest rate benchmark and currency markets.
The European Parliament's economic affairs committee voted on Tuesday in favour of the rules that will introduce direct supervision of "systemically important benchmarks" such as Libor and currency indexes for the first time.
Parliament and EU states have joint say on the new rules and further negotiations are likely before they become law.
The U.S. Commodity Futures Trading Commission, a regulator, has warned of "adverse market consequences" if the draft law, as originally proposed, was not changed.
The original draft would only allow banks and asset managers in the EU to use non-EU based benchmarks if they were compiled under rules that were deemed "equivalent" or as strict as the new EU standards.
The CFTC worried EU investors would be unable to hedge using thousands of products traded on U.S. futures exchanges because the United States has no plans to introduce binding new rules on benchmarks.
To ease the CFTC's concerns, the lawmakers voted through amendments making it possible for individual administrators of benchmarks in the United States to apply for "recognition" in the EU, thus allowing them to continue being used.
Administrators would be given two choices: demonstrating they meet the new EU rules, or that they comply with principles on benchmark compilation introduced globally by the International Organisation of Securities Commissions (IOSCO), an umbrella group of market watchdogs.
"We have discussed this with representatives of various non-EU countries. These representatives, including those from the U.S. financial regulators, have indicated they feel our solution can work," Cora van Nieuwenhuizen, the Liberal lawmaker steering the measure through parliament, told Reuters.
Lawmakers also backed regulating commodity benchmarks in line with separate IOSCO principles on these.
Britain, meanwhile, is already moving early to crack down on benchmark rigging as much of the attempted manipulation took place at banks based in London.
It has already introduced a new law requiring Libor to be compiled by a third-party administrator that meets a host of requirements, with convicted riggers facing seven years in prison.
From Wednesday, seven other UK-based financial benchmarks, including the WM/Reuters currency benchmark, the LBMA gold price which replaced the London Gold Fix and ICE Brent Index will also come under the new rules.
"The reality is that, in the wake of the Libor and FX scandals, banks have introduced changes to manage the risks relating to benchmarks," said Jonathan Grimes, a partner at law firm Kingsley Napley.
(Editing by Susan Thomas and Mark Potter)
