UK HM Treasury Publishes Consultation Document Proposing Additional Benchmarks

The UK’s HM Treasury published a consultation document seeking views on which additional benchmarks should be brought into the regulatory framework originally implemented for LIBOR.

On June 12, 2014, a joint review of the ways in which wholesale financial markets operate was launched by HM Treasury, the Bank of England and the Financial Conduct Authority (“FCA”). The final report is expected in June 2015, but in the near-term, the Chancellor of the Exchequer will consider which additional major benchmarks – across the fixed income, currency and commodity markets – should be brought into the regulatory framework originally implemented in the wake of recent LIBOR misconduct.

The consultation document recommends bringing the following benchmarks into the scope of the regulation of benchmarks:

  • Sterling Overnight Index Average (“SONIA”);
  • Repurchase Overnight Index Average (“RONIA”);
  • WM/Reuters’ (“WMR”) 4 p.m. London Closing Spot Rate;
  • ISDAFIX;
  • ICE Brent Futures;
  • LBMA Silver Price; and
  • London Gold Fixing.

The consultation document’s summary of the Fair and Effective Markets Review (“Review”) reports that the Review advises that all benchmarks on the recommended list should be made “specified” benchmarks for the purposes of the Regulated Activities Order and be designated as “relevant” for the purposes of the criminal offence of making misleading statements in relation to benchmarks, so that these benchmarks are brought under the FCA’s regulatory regime and their manipulation is subject to criminal legislation.

The Review anticipates that the regulatory framework will apply to the seven benchmarks in somewhat different ways:

  • Generally speaking, under the framework, an administrator of a specified benchmark is responsible for collecting, analyzing or processing information or expressions of opinion used to determine a specified benchmark and must be authorized and subject to FCA rules. The Review expects that the administrators of all seven recommended benchmarks will be treated in this way.
  • Under the framework, anyone who acts as a benchmark submitter – i.e., someone who provides information or expressions of opinion to a benchmark administrator required for the purpose of determining a specified benchmark – also must be authorized and subject to FCA rules. However, those requirements are disapplied when, among other things, that information consists solely of factual data obtained from a publicly available source. On that basis, the Review anticipates that these requirements would be applied to the contributing brokers who submit brokered overnight transaction rates and volumes to the Wholesale Markets Brokers’ Association for the purpose of determining SONIA and RONIA, and the submitting banks that contribute mid-market swap rates to ICE Benchmark Administration Limited for the purpose of determining ISDAFIX.

Comments on the consultation document are due by October 23, 2014.

See: HM Treasury Consultation Document.