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FCA to regulate 7 FICC benchmarks

The Financial Conduct Authority recently announced that starting April 1, it will regulate seven benchmarks used for fixed income, currencies and commodities transactions. The government organization revealed plans to apply the rules surrounding the London Interbank Offered Rate to these additional benchmarks.

Proposed requirements
In an effort to develop the proper regulatory framework, the FCA released a consultation paper containing its proposed approach for supervising these benchmarks. The organization requested feedback on the document, giving industry participants until Jan. 30 to reply.

Under the new proposal, both administrators of benchmarks – as well as industry firms supplying information to calculate these measures – would be obligated to appoint a senior individual to oversee compliance with FCA requirements, according to Out-Law.com. With this newfound authority, the person would be responsible for adopting a framework for oversight and governance, controlling for conflicts of interest and singling out potentially manipulative activities.

New sanctions
Industry participants should be aware that any individual who manipulates any one of the seven additional benchmarks named by the FCA will face the same criminal penalties as those who take such liberties with a ‘relevant benchmark’ introduced for LIBOR, the media outlet reported. More specifically, those who violate these regulations could suffer unlimited fines or spend up to seven years in jail.

Martin Wheatley, chief executive of the FCA, commented on the organization’s move to regulate the seven benchmarks, emphasizing the regulator expanded its supervision of these crucial measures to ensure market confidence.

“I am determined to ensure that markets work well and preserve the UK’s reputation as a centre of excellence for financial services – today’s announcement is a vital step in achieving this,” he said. “This builds on our work to strengthen LIBOR, and drive up standards on benchmarks across the board.”

Compliance management challenges
However, not everyone was optimistic, as financial regulation expert Michael Ruck commented on the growing benchmark compliance burden that institutions face, according to Out-Law.com. Ruck, who works for international law firm Pinsent Masons, also spoke to the potential criminal sanctions involved.

“These ‘magnificent seven’ benchmarks and those firms involved with them should take heed and learn the lessons from those related to LIBOR and FX who have received significant financial penalties for misconduct prior to their regulation by the FCA,” he told the news source.

Institutions could easily face higher expenses tied to compliance at a time when their benchmark data costs are rising. These latest requirements could also make their regulatory environment even more intricate than before, at a time when firms in this space are operating in a landscape created by the enactment of several key regimes in recent years.

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