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EU Commission targets Libor
11 September 2012
The European Commission has launched a consultation on benchmarks and market indices
The European Commission has launched a consultation on how to improve the production and governance of benchmarks such as Libor and market indices.
The consultation covers all benchmarks such as Euribor, Tibor and Cibor as well as indices that reference commodities, real estate prices and pensions.
The Commission is currently amending separate regulatory proposals covering insider dealing and market manipulation, with a view to issuing a directive that will impose criminal sanctions for these activities.
However, the European executive body said that changing the sanctioning regime alone “may not be sufficient to improve the way in which benchmarks are produced and used” so it launched the new more targeted consultation.
“Sanctioning does not remove the risks of manipulation arising from the inherent conflicts of interest linked to the production and governance of benchmarks in their current form,” the Commission added.
The Commission talked about the governance of underlying data in benchmarks, saying that conflicts of interest could distort the production of this data if the contributor has a financial interest in using the benchmark.
The Commission pointed towards the recent Libor scandal as an example: “Libor contributing banks had derivative contracts priced by reference to Libor which may have created an incentive to make submissions which would move the benchmark in a favourable direction.”
The regulator said there should be a consideration for “appropriate measures to mitigate actual or apparent conflicts” for entities that submit data for benchmarks.