Published: 20/05/2015 Last Modified: 14/08/2015
We have an objective to ensure that markets work well. Because key benchmarks are used across the globe, it is vital that regulators take coordinated steps to improve market integrity.
The FCA has powers to regulate benchmarks as specified by HM Treasury, currently:
- LIBOR (London Inter Bank Offered Rate) a key interest rate benchmark
- SONIA (Sterling Overnight Index Average) and RONIA (Repurchase Overnight Index Average), which both serve as reference rates for overnight index swaps
- WM/Reuters London 4pm Closing Spot Rate, 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 Index, traded on the ICE Futures Europe (IFEU) exchange, which acts as the crude oil futures market’s principal financial benchmark.
The regulatory landscape
Since the first LIBOR related enforcement action in June 2012 the FCA has played a leading role in domestic and international initiatives to raise regulatory standards for financial benchmarks.
The first regulatory regime for benchmarks, starting with LIBOR, was introduced in April 2013, and we are actively engaged in supporting EU and wider international reforms.
Timeline and key milestones
- The Chancellor commissioned the FSA to conduct the Wheatley Review of LIBOR in July 2012.
- The review, published in September 2012, recommended that contributing to and administering LIBOR became regulated activities; and that a new administrator for LIBOR should be appointed. Powers to regulate LIBOR became effective in April 2013.
- The FCA co-chaired work by the International Organisation of Securities Commissions (IOSCO) to propose regulatory standards for benchmark administrators in January 2013. These were finalised in July in 2013, and the FCA participated in the IOSCO Benchmark Task Force’s September 2014 review of how effectively these standards have been applied to key benchmarks.
- We also co-chaired Financial Stability Board’s July 2014 work on reforms to interest rate benchmarks, and continue to work closely with them on benchmark reform.
- In Europe, the FCA supported the joint principles on benchmark setting developed by the European Securities and Markets Authority and European Banking Authority, published in June 2013.
- The Fair and Effective Markets Review (FEMR) was established by the Chancellor in June 2014, to conduct a comprehensive and forward-looking assessment of the way wholesale financial markets operate. It is led by the Bank of England, and co-chaired by the FCA and HM Treasury. The FCA and HM Treasury have already implemented its October 2014 recommendations that further seven key benchmarks that should be regulated in addition to LIBOR, effective from 1 April 2015.
Future policy reforms
We will continue to engage with these groups, HM Treasury and the Bank of England on domestic and international policy initiatives, including the development of new EU benchmark regulation and FEMR’s work on the fixed income, currency and commodity markets.