Global securities regulators have issued a new set for principles for the operation and oversight of financial benchmarks, in the wake of the LIBOR (London Interbank Offered Rate) manipulation scandal.
The International Organization of Securities Commissions (IOSCO) published its final report Wednesday setting out principles for financial benchmarks, which aims to help improve the integrity, reliability and oversight of these sorts of financial benchmarks by establishing guidelines for benchmark administrators in terms of governance, benchmark design, the quality of the rate-setting methodology, and, accountability mechanisms, such as complaints processes, documentation requirements and audit reviews.
“Benchmarks are a useful and important tool in many financial markets. These principles set out clear and robust standards that will improve their construction and oversight of benchmarks, and form an important step in restoring their credibility,” said Martin Wheatley, CEO of the UK Financial Conduct Authority (FCA), who co-chaired the IOSCO task force that developed the principles, along with Gary Gensler, chairman of the US Commodity Futures Trading Commission (CFTC).
“Given the known problems with LIBOR, EURIBOR and other significant market benchmarks, I am pleased that the IOSCO principles issued today require that benchmarks be anchored by observable transactions and subject to robust governance processes that address potential conflicts of interest,” added Gensler.
IOSCO says that the principles provide a framework of standards that can be met in different ways. Along with a set of high level principles, it also sets out more detailed principles for benchmarks that have specific risks due to their reliance on submissions and/or their ownership structure, it notes.
It calls on benchmark administrators to publicly disclose their compliance with the principles within 12 months, and says that IOSCO intends to review the extent to which the principles have been implemented within 18 months.