The FMLC has published a letter that it has sent to Rupert Thorne, Deputy to the Secretary General of the Financial Stability Board (FSB) in which it discusses certain reform initiatives in the field of commodity benchmarks.
The FMLC believes that the FSB is well-placed to undertake a holistic international enquiry into the appropriate objectives to be pursued by the various benchmark regulatory reform initiatives underway both nationally and regionally. It also recommends that consideration should be given to adopting the approach that was taken in relation to the study on the interest rate benchmarks.
In the letter, the FMLC commends the “excellent work” of the FSB on benchmark evolution and transition, in particularly in relation to the work it carried out on the various “IBOR” benchmarks. Furthermore, the FMLC endorse the initiatives concerning the International Organization of Securities Commissions’ final reports entitled Principles for Financial Benchmarks and Principles for Oil Price Reporting Agencies.
However, the FMLC notes that the Principles are drafted at a high level and; “Whilst the application of the Principles to commodities benchmarks may be desirable, detailed implementation may bear practical challenges and could require the development of separate regulatory tools”.
The letter notes that there are a number of measures being taken at the national or regional level in relation to the regulation of commodities benchmarks. However, such autonomous national or regional action is likely to lead to inconsistencies, gaps, overlaps, duplicative requirements and other legal uncertainties. In such circumstances the FMLC states that “an overarching international enquiry into the appropriate objectives to be pursued by regulatory reform initiatives can assist in promoting inter-jurisdictional cohesion and legal certainty”.
The FMLC considers that the FSB is well-placed to undertake such an inquiry and consideration should be given to adopting the approach that was taken in relation to the study on the IBOR benchmarks. In this instance, the FSB worked through the agency of the Official Sector Steering Group (which comprises of capital markets regulators and representatives of central banks and relevant industry experience by establishing the Market Participants Group) to undertake research. The FSB therefore benefitted from input and guidance from other international standard-setting bodies and a wide array of regulators and supervisors from multiple jurisdictions, as well as from industry participants.
The purpose of the Financial Markets Law Committee (FMLC) is to identify issues of legal uncertainty, or misunderstanding, present and future, in the framework of the wholesale financial markets which might give rise to material risks, and to consider how such issues should be addressed.
The Letter is available here.