Inside this Topic Guide
The allegations and cases of benchmark manipulation across the globe have caused a number of governments and regulatory bodies to scrutinise how benchmarks are set and administered.
LIBOR replacement: Contracts with an estimated notional value of more than $300 trillion use LIBOR as their benchmark and it has been described by Warren Buffet as "the base rate for the whole world". Although LIBOR has been a bedrock of the financial markets for over 30 years, in July 2017 Andrew Bailey, Chief Executive of the UK's Financial Conduct Authority heralded its potential demise, indicating that LIBOR is likely to cease to exist by the end of 2021. In his speech, Andrew Bailey indicated that the FCA's active encouragement has been a significant factor in persuading LIBOR panel banks to continue providing quotes, given a lack of underlying active markets. However after 2021, the FCA will no longer encourage or compel LIBOR panel banks to provide quotes and so the FCA is encouraging the development and transition to alternative reference rates as a priority.
See LIBOR replacement below and our Client Briefing LIBOR – the beginning of the end? for more detail.
EU Benchmarks Regulation: At an EU level, on 1 January 2018, the EU Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (Regulation (EU) 2016/1011) entered into full application, subject to certain transitional arrangements. The stated overall objective of the EU Regulation is to help restore confidence in the integrity of benchmarks by enhancing the robustness and reliability of benchmarks, facilitating the prevention and detection of their manipulation and clarifying responsibility for and the supervision of benchmarks by the authorities. It regulates the administration of, contribution to and use of a broad range of indices and replaces corresponding benchmark regulatory regimes previously in place in member states.
See EU benchmark reform and administration below and our Client Briefing The new EU Benchmarks Regulation: What you need to know (September 2016) for more information.
International: At the international level the International Organization of Securities Commissions (IOSCO) published Principles for Oil Price Reporting Agencies in December 2012 and its Final Report on Principles for Financial Benchmarks in July 2013, shortly after the Financial Stability Board established the Official Sector Steering Group of regulators and central banks to coordinate consistency of review of existing interest rate benchmarks. In 2014, the FSB recommended enhancing existing IBORs and the development and adoption of alternative risk free rates (RFRs) and several jurisdictions have since established working groups seeking to develop appropriate alternative RFRs. In 2018, various trade associations jointly published a global benchmark transition roadmap highlighting key challenges involved in transitioning from IBORs to alternative RFRs.
UK and other jurisdictions: At a national level, work continues on developing risk free or near risk free rates to replace LIBOR and other similarly structured interbank offered rates. Outside the EU, jurisdictions are taking different approaches to the regulation of benchmarks. Some jurisdictions like Singapore and Japan have adopted regulatory reforms that target a few, specifically designated benchmarks. Others, like the USA, have preferred to achieve the objectives of the IOSCO Principles through more robust enforcement rather than new supervisory architecture.
|28 June 2018||
ECB publishes methodology for calculating Euro Short-Term Rate (ESTER)
|23 April 2018||
BoE implements its reforms to the Sterling Overnight Index Average (SONIA) interest rate benchmark.
|1 February 2018||
Trade associations publish benchmark transition map
|24 November 2017||
FCA publishes statement on LIBOR panels.
|27 July 2017||
LIBOR: FCA Chief announces transition to alternative reference rates by end-2021
|22 June 2017
BoE publishes white paper on potential approaches to broader adoption in sterling markets of the SONIA interest rate benchmark.
|30 March 2017||
ESMA publishes final draft technical standards for Benchmarks Regulation.
|10 November 2016||
ESMA publishes report on technical advice for Benchmarks Regulation.
|29 June 2016||
Benchmarks Regulation (Regulation (EU) 2016/1011) is published in the Official Journal. The Regulation came into force on 30 June 2016.
|25 April 2016||
Bank of England becomes administrator of SONIA interest rate benchmark | Press release.