UK Treasury consults on extending LIBOR powers to more financial benchmarks

The government has today launched a consultation on extending the new legislation the government put in place to regulate LIBOR to cover further benchmarks in the foreign exchange, fixed income and commodity markets.

In June this year, the government announced the establishment of the Fair and Effective Markets Review, which is a joint review by the Treasury, the Bank of England, and the Financial Conduct Authority (FCA) into the way wholesale financial markets operate. Strong and successful financial services that set the highest standards are an essential part of building a resilient economy.

Recent events have demonstrated the need for authorities and market participants to take action to ensure fair and effective markets. Forward-looking in nature, this review reflects the government’s long term economic plan to ensure Britain remains a world leader in financial services, with successful institutions operating to the highest standards.

Drawing on the insights of public officials, market participants, and users of wholesale financial services, the review is also intended to reinforce confidence in the fairness and effectiveness of UK wholesale financial market activity, and influence the international debate on trading practices.

While the review will publish its final report in June 2015, the Chancellor confirmed at the time that the government will extend the new legislation the government put in place to regulate LIBOR to cover further financial benchmarks, based on an early recommendation of the review.

The recommendations have now been submitted to the Treasury and have been published alongside the consultation.

The government is consulting on extending the legislation to the following seven major benchmarks:

  • Sterling Overnight Index Average (SONIA) and the Repurchase Overnight Index Average (RONIA), which both serve as reference rates for overnight index swaps
  • WM/Reuters 4pm London Fix, which is the dominant global foreign exchange benchmark
  • ISDAFix, which is the principal global benchmark for swap rates and spreads for interest rate swap transactions
  • London Gold Fixing and the LMBA Silver Price, which determine the price of gold and silver in the London market
  • ICE Brent futures contract, traded on the ICE Futures Europe (IFEU) exchange, which acts as the crude oil futures market’s principal financial benchmark.

Economic Secretary to the Treasury Andrea Leadsom said:

The integrity of the City matters to the economy of Britain. Ensuring that the key rates that underpin financial markets are robust, and that anyone who seeks to manipulate them is subject to the full force of the law is vital.

That’s why the government is determined to deal with abuses, tackle the unacceptable behaviour of the few and ensure that markets are fair for the many who depend on them.

So I am very pleased that the Fair and Effective Markets Review has made these recommendations.

The consultation will run from 25 September to 23 October 2014. As part of the consultation process, the government will hold targeted industry roundtables with affected parties.

The government intends to have the new regime for the designated benchmarks in place by the end of the year, and will continue to engage in ongoing international discussions on improving the integrity of all benchmarks.

The Fair and Effective Markets Review is being led by Bank of England Deputy Governor for Markets and Banking, Minouche Shafik, with Martin Wheatley (Chief Executive Officer, FCA) and Charles Roxburgh (Director General, Financial Services, HM Treasury) as co-chairs.


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