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The Practical Consequences of Benchmark Regulation

There has been widely publicized misconduct by some financial firms and their employees in the management of financial benchmark activities. Global regulators have taken enforcement actions against numerous firms including unprecedented financial sanctions and the imprisonment of several individuals. Given the extensive use of benchmarks in the economy, it is essential that they are accurate and credible for markets to operate efficiently.

As well as directly supervising some benchmark activities, regulators have imposed and proposed more fundamental intervention in the form of legislative changes. The UK’s Financial Conduct Authority (FCA) has recently conducted a thematic review of oversights and controls for financial benchmarks (the Review). This paper draws on the conclusions from the Review and evaluates the impact of the significant reforms both completed and under proposal. It also makes recommendations for industry best practice for benchmark activities.

Benchmark activities are complex and expensive to manage. As firms face spiralling benchmark costs they must find new operating approaches. Now is the time to examine processes and procedures surrounding the management of benchmark activities to increase benchmark transparency and comply with new legislation.

The Practical Consequences of Benchmark Regulation

 

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