ROME (Reuters) - The London Bullion Market Association (LBMA) could charge its member banks more or even disband its Gold Forward Offered Rates (GOFO) after a string of new regulations in the financial market, the chairman of the industry body said on Sunday.
In July, the International Organisation of Securities Commissions (IOSCO) - a global umbrella group for market regulators - detailed a series of principles on financial benchmarks, after the Libor (London Interbank Offered Rate)manipulation scandal.
The scandal led Madrid-based IOSCO to study how Libor, which was rigged by British banks, including Barclays (BARC.L), and other money market benchmarks should be supervised and how they are set, to restore market confidence.
Libor is the estimated interest rate set daily by leading London banks at which they would be charged when borrowing from other banks.
The GOFO rate is the gold equivalent to Libor, at which dealers will lend gold on swap against U.S. dollars.
“Going forward, the GOFO service has to conform to some principles, therefore we have to look at how the data is collected, how it’s recorded, who is administrating it,” LBMA Chairman David Gornall told Reuters in an interview.
“And we could either charge member banks more money or if the market decides that they don’t need to spend more money on regulatory affairs (because) as they already pay someone to do that... then the GOFO might not exist.”
Gornall added that the alternative for the LBMA would be to carry on with the Good Delivery List, the Responsible Gold Guidance on ethical gold production, refining and assaying, the annual conference, publishing the dedicated quarterly journal the Alchemist but not the regulatory side.
The Good Delivery rules specify the physical characteristics of bars used in settlement in the wholesale London bullion market.
Gold prices have fallen by a fifth this year, hurt by speculation that the U.S. Federal Reserve is set to rein in its bullion-friendly quantitative easing (QE) policy, a major driver of the record-high prices seen in recent years.
QE put pressure on long-term interest rates, keeping the opportunity cost of holding non-yielding gold at rock bottom, while stoking fears of rampant inflation in the years to come.
Gold dropped $200 an ounce in two days in April in its sharpest slide in 30 years, and investors started to divest gold as a result, unwinding nearly 700 tonnes of ETF holdings so far, while central bank buying more than halved.
The halt in the gold price upward trajectory could have an impact on the decision that LBMA member banks have on the GOFO services, Gornall said.
“If you look at the commodities cycle, it’s whether you believe there is going to be enough business to fund (higher charges to get GOFO data)...I think that’s a relevant question and that’s what I ask them as the LBMA chairman.”
Reporting by Clara Denina; Editing by Marguerita Choy