The European Commission is a step closer to making financial benchmarks more reliable and less vulnerable to manipulation, in the wake of the banking scandal of 2013, in which banks were accused of allegedly manipulating various benchmarks including the inter-bank offered rates, Euribor and Libor.

The European Parliament has cleared the way for negotiations with the Council and the Commission to start next month.

The proposed EU regulation will also affect other benchmarks, such as those for foreign exchange (FX) and commodities, including gold, silver, oil and biofuels.

According to the statement, released on 19 May by the European Commission, the rules aim to improve the functioning and governance of benchmarks that are produced and used in the EU in financial instruments such as bonds, shares, futures or swaps, and in financial contracts such as mortgages.

“It is consumers who ultimately have to pay the price when benchmarks are manipulated or unreliable as this can increase the cost of their mortgage repayments or the returns on their pension funds," said Jonathan Hill, EU Commissioner responsible for Financial Stability, Financial Services and Capital Markets Union. "Our proposal will put in place rules for safer benchmarks across the EU. I am confident that we can now move swiftly to find an agreement on a final text.”

The European Commission stated that its proposal will contribute to the accuracy and integrity of benchmarks used in financial instruments and financial contracts by:

• ensuring that contributors to benchmark are subject to prior authorisation and on-going supervision depending on the type of benchmark (e.g. commodity or interest-rate benchmarks);
• improving their governance (e.g. management of conflicts of interest) and requiring greater transparency of how a benchmark is produced;
• ensuring the appropriate supervision of critical benchmarks, such as EURIBOR/LIBOR, the failure of which might create risks for many market participants and even for the functioning and integrity of markets of financial stability.

The original statement and background information is available here.