The FSA is consulting on new powers for the Financial Conduct Authority to monitor benchmarks such as the Libor and wholesale gas markets, where there have been allegations of rate rigging.
FCA chief executive designate Martin Wheatley conducted his review of Libor in September in the wake of the rate rigging scandal. One of his central proposals calls for an independent administrator of Libor rather than the British Bankers’ Association, which will be monitored by the FCA.
The Government accepted Wheatley’s recommendations in full and has amended the Financial Services bill to ensure they quickly become law.
The FSA’s proposals will require benchmark administrators to corroborate submissions and monitor for any suspicious activity.
Those submitting data to benchmarks will be required to have in place a clear conflicts of interest policy and appropriate systems and controls.
There will also be two new significant influence controlled functions created under the FSA’s approved persons regime for the administrator and submitting firms.
The FSA is keen to see more panel members on Libor administrators to increase the accuracy and reliability of reporting, as recommended in the Libor review.
The FSA says it has considered both the Wheatley Review recommendations and the Treasury’s proposed legislative amendments in designing an approach to regulating the setting of benchmarks.
Initially the only regulated benchmark in the UK will be Libor, but the new regime will contain a framework to monitor others in the future, if appropriate.
Wheatley says: “Confidence and trust are critical to financial markets. The disturbing events uncovered in the manipulation of Libor have severely damaged that trust. The proposals will bring in clear rules for the setting and governance of benchmarks and are a key step to ensuring the integrity of Libor.”
Informed Choice managing director Martin Bamford says: “Libor definitely needs and independent regulator to take responsibility for it but the Bank of England would be better equipped than the FCA because it relates to interactions between banks.”
In June, Barclays was fined £290m by the FSA and US authorities after it admitted that derivative traders manipulated Libor. Chancellor George Osborne confirmed at the time a number of British banks were being investigated over rate-rigging.