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EU nations determine stance on financial benchmarks

The European Union member nations recently established their position on financial benchmark regulation. More specifically, the Permanent Representatives Committee of the Council of the EU, which contains ministers from every state in the 28-country consortium, came to an agreement on the new rules.

EU members reach common ground
Regional officials have been considering new regulations to govern these measures after the scandal involving the alleged manipulation of numerous interest rates. The European Commission originally proposed draft regulations for these measures in 2013, seeking to reduce the chances of future benchmark manipulation.

EU member nations recently determined their position on benchmark reform.

On Friday, Feb. 13, the 28 countries of the EU reached common ground on how they wished to regulate the benchmarks, according to Reuters. While the EC provided the initial proposal for this new regulatory framework, the EU altered the original document so that it would affect a broader range of benchmarks, labeling them as “critical.”

Comprehensive scope
“The scope of the regulation is broad, although benchmarks deemed to be critical will be subject to stricter rules, including the power for the relevant competent authority to mandate contributions of input data,” Latvia, president of the EU, said in a statement.

“Providing stricter benchmarks regulations could have a broad impact.”

Even before the individual members of the 28-nation consortium expanded the number of interest rates covered by the regulation, one market expert emphasized that the EC’s proposal would cover far more benchmarks than the rules set forth by the Financial Conduct Authority, according to Bloomberg.

Mark Compton, who works for law firm Mayer Brown as a London-based financial regulation partner, told the news source that the current proposal would even affect proprietary indices.

Providing stricter benchmarks regulations could have a broad impact, as these measures are used to determine the price of a wide range of financial contracts, ranging from raw materials to mortgage rates.

Next steps
Now that the EU states have determined their position, they will next negotiate with the European Parliament, which has some input on the final regulations, according to Reuters. Once the various stakeholders determine their final rules, the European Securities and Markets Authority will work with national regulators to organize their supervision of benchmark administrators.

According to the proposal the EU states approved on Feb. 13, several national supervisors will join ESMA to create a college tasked with making important decisions regarding the most crucial benchmarks, the media outlet reported.

In terms of the timeline involved, an EC spokeswoman said many hope the EU will adopt new benchmark regulations before Latvia’s presidency of the 28-nation group finishes at the end of June, according to Out-law.com. Ideally, the EP will adopt the proposed rules the first time they are read, which will prevent the entities involved from engaging in a second round of negotiation, the representative stated.

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