The FCA has published a Policy Statement (PS15/6) containing the regulatory framework for supervising seven additional benchmarks. The Policy Statement contains the final rules and summarises the responses it received to its consultation paper cp14/32. Additionally, it includes the FCA’s reply to the feedback it received during the consultation. The new Handbook provisions come into force on 1st April 2015.
Currently, the London Inter-bank Offered Rate (LIBOR) is the only benchmark the FCA regulate, but under the new rules, the benchmarks being brought into scope are:
- Sterling Overnight Index Average (SONIA)
- Repurchase Overnight Index Average (RONIA)
- ISDAFIX (soon to be renamed the ICE Swap Rate)
- WM/Reuters (WMR) London 4pm Closing Spot Rate
- LBMA Gold Price • LBMA Silver Price
- ICE Brent Index
The rules set out in the Policy Statement affect the administrators of the additional benchmarks and, where the benchmark has regulated submitters, firms that submit to them. They also affect the administrator of, and submitters to, LIBOR. The changes will be of interest to firms that use these benchmarks as part of their ongoing business, including asset managers and asset owners as well as electronic trading platforms.
The economic secretary to the Treasury Andrea Leadsom said in a statement: “The integrity of the City matters to the economy of Britain. Ensuring that the key rates that underpin financial markets are robust, and that anyone who seeks to manipulate them is subject to the full force of the law is vital.” She continued: “That’s why the government is determined to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them.”
The modifications the FCA proposed to the benchmark administrator requirements are to ensure that administrators put in place similar levels of data scrutiny for the benchmarks they administer, whether or not the benchmarks have submitters. To achieve this the FCA proposed:
- Modifying the definition of ‘benchmark submission’ to include publicly available data that the administrator uses to determine the benchmark.
- Modifying certain requirements to ensure that all benchmarks are still subject to governance and conflicts of interest requirements, and that due diligence is carried out on the information used to determine the respective benchmark, including monitoring and notifications to us.
- Ensuring the existing confidentiality requirement does not apply to benchmark administrators that use publicly available data.
Additionally, as stated in the consultation paper, in common with other persons carrying on regulated activities, benchmark administrators and benchmark submitters will be subject to other Handbook provisions by virtue of being an authorised person. These include:
- Principles for Businesses (PRIN)
- General Provisions (GEN)
- Threshold Conditions (COND)
- Systems and Controls requirements in SYSC
- Statements of Principle and Code of Practice for Approved Persons (APER) – where relevant
- The Fit and Proper test for Approved Persons (FIT) sections – where relevant
Requirements specifically for benchmark administrators include:
- Adequate benchmark submissions
- Establishment of an oversight committee
- Develop and publish practice standards
- Record keeping for at least five years
- Adequate financial resources (a minimum of nine months operating costs)
The Policy Statement comes as the FCA brings its first public action against a trader for manipulating the LIBOR. The FCA has banned Paul Robson, a former trader at Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank) from the UK financial services industry for lacking honesty and integrity following a criminal conviction for fraud in the US. In 2014 Mr Robson pleaded guilty in the US for his role in a conspiracy to manipulate Rabobank’s Yen LIBOR submissions to benefit the firms trading positions.
Georgina Philippou, acting director of enforcement and market oversight at the FCA, said: This ban reinforces our expectation that individuals and firms take responsibility for ensuring market integrity and reminds them of the consequences if they fall short of our standards.” To date the FCA has issued 14 warning notices relating to interest rate benchmarks, and continues wider investigations into individuals’ conduct in relation to LIBOR misconduct.
The Policy Statement is available here.
The General guidance on Benchmark Submission and Administration (BENCH) provides guidance on the wider Handbook provisions that apply to benchmark administrators and submitters is available here.
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