The Chair of the European Securities and Markets Authority (ESMA), Steven Maijoor, delivered a keynote speech on benchmarks at the 50th ICMA AGM and Conference 2018 in Madrid. As benchmarks come back into focus for central banks, legislators and regulators, Maijoor noted that “we have all ignored that our train went in the wrong direction, we failed to alter its course when we should have, and we only have limited time left to get the train back on the right track.”
Excerpts from the speech:
“…the BMR [European Benchmarks Regulation, entered into force in June 2016, will fully apply from early 2020] takes a proportionate approach. Only those indices which are used most frequently and which do not rely on regulated data, are subject to the most stringent set of rules. It is clear that these critical benchmarks, which are relevant to financial markets across the EU, need to be supervised coherently and consistently. The same holds true for third country benchmarks that will continue to be used in the EU: It would be an undesirable outcome if these benchmrks were treated differently in the respective Member States of reference. The most effective way to ensure coherent and consistent supervision is to create a single point of entry into the European market. Therefore, I want to express my full support for the proposed role for ESMA as a supervisor of critical and third country benchmarks as envisaged in the Commission’s reform of the European Supervisory Authorities. ESMA‘s Board of Supervisors had already backed this proposal in May 2017.”
“…we find ourselves in a situation today where major benchmarks‘ viability is at risk — benchmarks, which have become essential for global financial stability and which have instruments and contracts worth trillions of Euros referencing them. And the task has become to find viable alternatives – that may even serve as a replacement for existing interest rate benchmarks in legacy contracts.”
“More urgently than ever, the task today is to find the right benchmark for the right purpose.
And let me be honest: this is a task where the financial industry needs to take the initiative.
ESMA and the international regulatory community will give all the support it can. But with the
ever-increasing reliance on these very few special-purpose benchmarks by an entire industry,
it was the private sector that steered the ship into the wild waters it is now in, and it is the
private sector which should stay onboard to guide the ship back to safer waters.”
It is “crucial that the major industry associations, including ICMA of course, are on board when candidates for alternative risk-free-rates (RFR) are discussed, when term structures are developed, and when matters of implementation are debated…reforming benchmarks worldwide is a pressing challenge that calls for all of us to play our part.”