Jonathan Hill, who heads up the European Commission section that drafts financial regulation proposals, recently pledged to pursue key reforms, specifically naming benchmark rates as a key area. Hill, who became commissioner in 2014, is one of many officials working to develop an ideal regulatory framework for the region.
Working on ‘major sources of risk’
Speaking at the Brookings Institution earlier this month, Hill emphasized that while he is devoted to driving growth and creating jobs, he also plans to work on “major sources of risk,” including reforms affecting how banks are set up and the way benchmark rates are calculated, according to The Wall Street Journal.
Benchmark rate reform
The push to create new benchmark regulations has generated substantial visibility in Europe, and many lawmakers and regulators have already become involved in working toward creating the optimal framework of rules for these rates.
Earlier this year, the individual nations of the European Union determined their position on the proposals surrounding benchmark regulations, according to Reuters. This stance built upon the original proposal offered by the EC in 2013, but provided a wider definition of which benchmarks are “critical” and therefore subject to the new regulations.
The council also created a revised position on the proposed reforms, with The Permanent Representatives Committee, acting on the behalf of the EC, announcing it had established its stance.
Higher data standards
In seeking to effectively regulate the calculation of benchmark rates, the draft regulation calls for higher data standards. To contribute data used for determining these rates, organizations would be legally obligated to follow stringent practices, as well as use information that is both reliable and complete.
“The draft regulation calls for higher data standards.”
When feasible, financial institutions would need to provide actual transaction input data, although they would be able to supply alternate information under other circumstances. While the aforementioned regulations might seem strict, benchmarks defined as “critical” under the regulations would have to follow more stringent guidelines and be subject to orders from regulators compelling them to supply input data.
After the EC established its stance, the entity requested that EU president Latvia begin working with the European Parliament to determine the final version of the bill.
Certain industry participants have criticized the proposal, with one partner in a law firm telling Bloomberg the draft language would encompass a fairly wide swathe of benchmarks including proprietary ones.
However, some have voiced concerns that European regulators are being easier on major banks than their U.S. counterparts, according to The Wall Street Journal. The approach the continent’s officials are taking to benchmark reform supports the idea that these worries lack a basis. Hill emphasized his desire to quell this unease while speaking at the Brookings Institution.
“I would hate it if, in the U.S., people thought that the EU was somehow soft on these issues,” he said, the media outlet reported. “I don’t think that’s true.”
Regardless of what others think, Hill stated that the time for “regulatory stability” has come, according to the news source. He emphasized the importance of viewing rules in a holistic manner, and tied the region’s need for a secure regulatory framework to economic goals, stressing that businesses need a clear set of rules to successfully plan for the future.