BRUSSELS — The European Union’s top financial regulator proposed tougher rules for market benchmarks, new oversight that comes after a wave of interest rate-rigging scandals at big banks.
But the plan represents a step back from earlier proposals, which called for a single regulator to oversee certain benchmarks.
The effort by the European Commission comes after a multiyear investigation by global regulators into whether financial firms manipulated key interest rates before and after the financial crisis to improve their profits and deflect scrutiny about their health. The fallout from the inquiry, which led to multibillion-dollar fines and criminal charges, prompted a public outcry for changes to the rate-setting process.
Under the proposal by the commission, national regulators would have the power to investigate possible rigging or conflicts of interests. If they find wrongdoing, they could impose fines of up to 10 percent of a firm’s annual revenue.
The new rules — which would cover a wide range of benchmarks in areas like energy and currency derivatives, financial contracts and mortgages — would also require banks and other contributors of data used in setting the benchmarks to sign a legally binding code of conduct to be enforced by national supervisors.
“Market confidence has been undermined by scandals and allegations of benchmark manipulation,” Michel Barnier, the European Union commissioner for financial services, said in a statement on Wednesday. “Today’s proposals will ensure for the first time that all benchmark providers have to be authorized and supervised.”
But the plan, which still needs approval by European Union governments and the European Parliament, stops short of other initiatives.
Earlier this year, the government of Britain made rate-rigging a criminal offense, as part of a broad overhaul. British regulators now oversee the rate-setting process for the London interbank offered rate, or Libor, a key benchmark at the center of the scandals.
Facing objections from Britain and parts of the finance sector, the commission backed away from earlier plans to put the European Securities and Markets Authority in charge of day-to-day supervision of various benchmarks. Instead, the agency could have the authority to settle disagreements on major issues among national financial supervisors, who oversee the setting of some benchmarks.
The proposal “arguably involves unnecessary Europeanization of the supervision of a benchmark, the oversight of which has already been reformed by the U.K. authorities,” said Barney Reynolds, a partner at the law firm Shearman Sterling in London who advises clients on European and British financial regulation, referring to Libor.
Some members of the European Parliament vowed to strengthen the rules by putting a European agency in charge.
“The European Parliament must now seek to revise the commission’s halfhearted proposals,” said Sven Giegold, a German member of Parliament and spokesman for finance issues for the Greens party. “This implies ensuring European supervision of key benchmarks.”
Article source: http://www.nytimes.com/2013/09/19/business/global/european-plan-aims-to-curb-rate-rigging.html?partner=rss&emc=rss