In the wake of the LIBOR rate-rigging scandal, European policymakers launched a consultation on Wednesday on possible new rules for producing and using benchmarks.
The European Commission’s consultation covers all benchmarks, not just interest rate benchmarks such as LIBOR, but also commodities and real estate price indices, and it seeks to identify possible shortcomings in the production and use of such benchmarks.
“The ultimate objective is to ensure the integrity of benchmarks. All options are on the table but any solution should guarantee that benchmarks are not subject to conflicts of interest, reflect the economic reality that they are intended to measure and are used appropriately,” it says.
The paper notes that recent alleged instances of manipulation of interest rate benchmarks has highlighted both the importance of indices and their vulnerabilities. And, it says that doubts about the accuracy and integrity of indices may undermine market confidence, cause significant losses to consumers and investors, and distort the real economy.
The commission indicates that it has already begun to amend proposed rules regarding market abuse to clarify that any manipulation of benchmarks is clearly illegal and can be subject to administrative or criminal sanctions. However, it says that this may not be enough on its own to improve the way in which benchmarks are produced and used.
“Sanctioning does not remove the risks of manipulation arising from the inherent conflicts of interest linked to the production and governance of benchmarks in their current form,” it says. “This consultation paper is aimed at identifying the key issues and shortcomings in production and use of benchmarks in order to assess the need for any necessary changes to the legal framework to ensure the future integrity of benchmarks.”
The consultation will run until November 15.