IOSCO consults on financial benchmarks
15 January 2013
By Asia Asset Management
The International Organization of Securities Commissions (IOSCO) has published a consultation report on financial benchmarks, which seeks comments from the public on policy issues arising from the work of its board level task force on financial market benchmarks.
The consultation report discusses concerns regarding the potential inaccuracy or manipulation of benchmarks and identifies benchmark-related policy issues across securities and derivatives and other financial sectors including:
The appropriate level of regulatory oversight of the process of benchmarking;
Standards that should apply to methodologies for benchmark calculation;
Credible governance structures to address conflict of interests in the benchmark setting process within the reporting financial institutions as well as in the oversight bodies; and
The appropriate level of transparency and openness in the benchmarking process.
The consultation also considers issues that market participants might confront when seeking to make the transition to a new or different benchmark. There should be sufficient data used to construct a credible benchmark. In cases where there is insufficient data, regulatory authorities should consider the possibility of transitioning away from a benchmark.
Following this consultation report, the task force will articulate a framework of robust, globally consistent policy guidance and principles for financial benchmarks and related activities.
The task force regularly co-ordinated and co-operated with related regional and international initiatives carried out by other regulatory authorities and organisations such as ESMA, BIS, and European Commission.
Masamichi Kono, chairman of the IOSCO board, stated: “Restoring confidence in the benchmarks widely used in the world’s financial markets is a matter of urgency in maintaining the integrity, efficiency and stability of the global financial system, and in protecting the interests of borrowers and investors. IOSCO is determined to contribute to this endeavor through the development of policy guidance and principles for a wide range of stakeholders including benchmark administrators, submitters, users of benchmarks and regulatory authorities. This report is the first step in our work to achieve this goal, and we look forward to receiving feedback from the broadest range of stakeholders around the world.”
Martin Wheatley, co-chair of the IOSCO board level task force and managing director of the UK Financial Services Authority, said: “This IOSCO consultation report represents the first global effort to strengthen the credibility and integrity of benchmarks used across the financial markets. The UK is at the forefront of this work, which is consistent with the findings and recommendations of the Wheatley Review. This consultation is an important step for IOSCO in developing robust, internationally applicable principles to drive up the standards of governance, transparency and the production of benchmarks.”
Gary Gensler, co-chair of the IOSCO board level task force and chairman of the US Commodity Futures Trading Commission, said: “Falsely reported LIBOR and other benchmark rates undermine the integrity of markets and shake the public’s trust in the financial system. The IOSCO consultation report will be critical to developing international principles for benchmarks and possible mechanisms and protocols for a smooth transition to new benchmarks when and if needed. I look forward to receiving public feedback, which will be extremely valuable to the final IOSCO report. We must ensure that benchmark rates best serve the public as honest and reliable reflections of the actual underlying markets to which they refer.”
Comments on the consultation paper are sought by February 11, 2013.
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