Benchmarks such as Libor (London Interbank Offered Rate) and Euribor (Euro Interbank Offered Rate) have been the centre of controversy for the last few years, landing banks with fines and brokers in hot water with regulators.
The new rules are a step forward in helping to rebuild confidence in financial markets in the European Union.
Barclays was fined $450 million in June 2012 by US and UK regulators in connection with alleged Libor and Euribor violations. Several months later, UBS paid $1.5 billion to settle a similar case, followed by The Royal Bank of Scotland which paid up $612 million in February 2013. In November, the UK charged ten former Deutsche Bank and Barclays employees in connection with Euribor manipulation.
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The first set of European Union rules to avoid further attempts by banks and brokers to rig currency markets and interest rate benchmarks was finally approved today to formally supervise market benchmarks, including Libor and Euribor.
Cora van Nieuwenhuizen, a Dutch liberal member of the European Parliament who steered the new measures, commented that they were necessary to ensure the future robustness and accuracy of benchmarks and that since they are used to establish the euro exchange rate, they should be fully trustworthy.
The vote rubber-stamped a deal reached between parliament and the EU states in November 2015 on a draft law proposed by the European Commission. The rules which come into effect this year categorise benchmarks into three groups, with critical benchmarks like Libor facing the strictest supervision. All administrators of benchmarks will be authorised by national regulators to make sure that the data used to compile the benchmark is reliable.
Britain, where much of the alleged rigging of Libor and currency markets took place, has already introduced rules requiring key benchmarks to have an independent administrator.
The new rules are a step forward in helping to rebuild confidence in the financial markets in the European Union.