UK Government Comments on the European Benchmark Regulation

The House of Commons European Scrutiny Committee (ESC) has published its 32nd report of 2014/15, which includes the Government’s comments on the proposed Regulation on indices used as benchmarks in financial instruments and financial contracts. The Government considers that the latest Latvian Presidency compromise proposal contains “significant improvements” over previous drafts, and additionally, is prepared to clear the document containing the Opinion of the European Central Bank on the draft Regulation.

The Benchmark Regulation was not cleared by the ESC but granted a scrutiny waiver and further updates have been requested by the Committee. This enables the UK Government to support a General Approach in the European Council in line with the improvements in the latest compromise text, particularly “the focus on a limited number of “critical benchmarks” and the reduced role for ESMA in favour of national supervisory authorities.”

The UK House of Commons was the only national parliament to have issued a Reasoned Opinion on the original proposal back in November 2013. This challenged the supposed benefits of EU level action; the enhancement of the single market, the promotion of cross-border transactions and the protection of consumers, as being outweighed by potential disadvantages. The disadvantages noted in the Reasoned Opinion included the unsuitability of harmonized rules to a wide variety of specific benchmarks, non-alignment with the International Organization of Securities Commissions (IOSCO) standards, increased regulatory burdens on benchmark administrators and contributors, the risk to the independence of national statistics authorities and the lack of provision for third country benchmarks.

In light of this, the ESC considers it “premature” to clear the current Latvian compromise proposal from scrutiny given that:

  • They have not yet had the chance to fully review the compromise text;
  • The proposal is one on which they issued a Reasoned Opinion and which they would therefore wish to retain under scrutiny at this stage of the process.

At the request of the UK Government to advance the proposal by either clearing the latest compromise text of the proposal or granting a security waiver, the ESC has granted a scrutiny waiver pursuant to paragraph 3(b) of the scrutiny reserve resolution.

The UK has been at the forefront of the regulation of benchmarks since the LIBOR scandal. At a time when there is already diminished public trust in financial service providers, politicians and regulators have been keen to take an aggressive stance in holding the index industry to account. With the UK General Election looming later this year, the Government is eager to be seen taking firm action, especially given the recent focus on scandals involving the $5.3tn foreign exchange market. “I am going to deal with abuses, tackle the unacceptable behaviour of the few, and ensure that markets are fair for the many who depend on them.” Chancellor George Osborne said in a speech last June.

Also this week, the European Parliament has updated its procedure file on the proposed Regulation on indices used as benchmarks in financial instruments and financial contracts. The Parliament had previously indicated that it would consider the proposed Regulation in plenary session between 6th to 9th of July 2015 but this date has now been pushed back to after the Summer break to the plenary session between 7th to 10th of September 2015.

The European procedure file on the Benchmark Regulation is available here.

The House of Commons Reasoned Opinion concerning a Draft Regulation on indices used as benchmarks in financial instruments and financial contracts is available here.

The House of Commons European Scrutiny Committee Thirty-second Report of Session 2014–15 is available here.

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