The FCA will regulate seven additional UK financial benchmarks across the fixed income, commodity and currency markets from 1 April 2015 in the wake of the Libor rigging scandal.
A consultation paper has been launched on extending the FCA’s approach to regulating Libor to firms that administer or contribute data to seven additional benchmarks. These are:
- Sterling Overnight Index Average (SONIA) and Repurchase Overnight Index Average (RONIA), which serve as reference rates for overnight index swaps.
- WM/Reuters London 4pm Closing Spot Rate, the predominant global foreign exchange benchmark.
- ISDAFIX, the principal global benchmark for swap rates and spreads for interest rate swap transactions.
- London Gold Fixing & LMBA Silver Price, which determine the price of gold and silver in the London market.
- ICE Brent Index, the crude oil futures market’s dominant benchmark.
Any benchmark administrators or contributors will have to be authorised and the regulator proposes that each relevant firm appoints a senior individual to oversee compliance with the new requirements, including identification of potentially manipulative behavior, controlling conflicts of interest and implementing oversight arrangements.
The move is in line with recommendations made in the Fair and Effective Markets review launched by the Bank of England, Treasury and FCA in June, to ensure transparency and fairness in financial markets.
FCA chief executive Martin Wheatley says: “I am determined to ensure that markets work well and preserve the UK’s reputation as a centre for excellence for financial services – today’s announcement is a vital step in achieving this.
“This builds on our work to strengthen Libor, and drive up standards on benchmarks across the board.”
The consultation will close on 30 January 2015, with final rules expected to be published in the first quarter of 2015.
In November, global regulators hit five banks – Citibank, JP Morgan, UBS, HSBC Royal Bank of Scotland – with fines of nearly £2bn for massive failings in foreign exchange trading.
Between 1 January 2008 and 15 October 2013, the FCA says bank traders tried to manipulate foreign exchange rates through collusion with other banks.
The regulator says the banks failed to manage obvious risks around confidentiality, conflicts of interest and trading conduct, The failings allowed traders at those banks to behave unacceptably, sharing information about clients’ activities which they had been trusted to keep confidential.
Banks also attempted to manipulate G10 spot FX currency rates, including in collusion with traders at other firms, in a way that could disadvantage those clients and the market.