Hot on the heels of a report from Canadian regulators recommending reforms to the Canadian benchmark rate, European regulators are out with their own reform recommendations Friday.
The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) published the results of their review of the administration and management of the Euribor benchmark, including recommendations to improve the governance and transparency of the rate-setting process, and to improve oversight. They also propose a set of principles for benchmark rate-setting processes generally.
The regulators report that they have identified “significant weaknesses” in the governance of the Euribor rate-setting mechanism and have made a number of reform recommendations. The weaknesses include a lack of independence in the oversight committee, insufficient accountability, a lack of formal requirements for banks that submit to the rate-setting process, insufficient linkage to real transactions, and that the definition of Euribor is not clear enough.
Their recommendations are aimed at addressing these weaknesses, and the regulators are calling for them to be implemented in full. They also intend to review the implementation of the recommendations within six months.
Andrea Enria, chair of the EBA, said, “ESMA and the EBA are convinced that the prompt and full implementation of today’s recommendations is an important step towards ensuring that Euribor represents a transparent and reliable benchmark for financial transactions within the European Union.”
The ESMA and the EBA have also developed a set of principles that are designed as a first step towards a potential formal regulatory and supervisory framework for benchmarks to be developed in the EU. They include a general framework for benchmarks settings (calculation methodology, governance, supervision, transparency of the methodology, contingency plans, etc.). They also provide guidance to firms involved in benchmark data submissions and to benchmark administrators, calculation agents, publishers and users. Comments on the proposed principles are due by February 15.
“The proposed principles, which are aligned with on-going EU and international work, will give clarity to benchmark providers and users, and are an immediate step to be taken in advance of potential wider changes in the supervisory and regulatory framework for financial benchmarks,” said Steven Maijoor, ESMA chair.