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Markets Regulation
FCA to police seven more benchmarks
From the Financial Times of Mon, 22 Dec 2014 18:12:02 GMT

The UK markets regulator is to formally police seven UK-based benchmarks in the wake of the scandal over attempted manipulation of key rates for bank lending and foreign exchange, extending the regulation introduced in 2013 to strengthen Libor.

The Financial Conduct Authority said on Monday it would regulate a set of fixed income, commodity and currency benchmarks that play a critical role in the daily workings of global markets.

London is the world’s main hub for forex and over-the-counter derivatives trading and is also an important home for metals and energy trading.

The FCA wants to make administrators of critical market benchmarks responsible for identifying potentially manipulative behaviour, controlling conflicts of interest and implementing robust governance structures. A decision on the benchmarks to be covered had been expected before the end of the year.

Confirmation on Monday means the UK will have gone further than other countries in the reform of benchmarks following investigations into attempted rigging of Libor (London interbank offered rate) and a WM/Reuters foreign exchange benchmark. Banks and interbroker dealers have collectively been fined more than $10bn for benchmark fixing and regulatory investigations are continuing.

“Here the UK is setting a precedent that other regulators around the world are looking to follow,” said David Clark, chairman of the Wholesale Markets Brokers’ Association, a trade association for interdealer brokers.

The move comes as the EU attempts to push forward its own approach following the publication in 2013 of proposed legislation by the European Commission that would regulate benchmarks. The FCA said it expected this EU legislation “will eventually replace the UK regulatory framework”.

The watchdog added: “It is necessary to take action now under current UK powers whilst discussions on the development of EU legislation continue.”

The FCA plans tighter oversight of two of the WMBA’s benchmarks — Sonia (Sterling Overnight Index Average) and Ronia (Repurchase Overnight Index Average), which both serve as reference rates for overnight index swaps.

The FCA also plans to regulate the WM/Reuters London 4pm closing spot rate; IsdaFix, the key rate for interest rate swaps; the London Gold Fixing; the LMBA Silver Price and the ICE Brent Index, which underpins one of the world’s main crude oil futures contracts.

“Today’s action applies the high standards we expect of firms in relation to Libor to benchmarks in these vitally important markets, ensuring that market participants can be confident in the fairness and integrity of the benchmarks they use,” said Martin Wheatley, chief executive of the FCA.

The ICE Brent, IsdaFix and gold benchmarks are all operated by Intercontinental Exchange, a US-based exchanges operator. A market consultation will take place until the end of January. The FCA plans to regulate the benchmarks from April.

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