February 26, 2019 / 1:53 PM / 7 months ago

EU gives market benchmark compilers two-year grace period

LONDON (Reuters) - The European Union has agreed to give the financial sector an extra two years to comply with new rules aimed at avoiding a repeat of attempts to rig Libor and other high-profile interest rate benchmarks.

The executive European Commission said late on Monday that representatives of EU states and the European Parliament backed giving compilers of “critical” interest rate and other widely used benchmarks until Dec. 31, 2021 to comply.

In a surprise move, they also backed giving compilers of ‘non-critical’ benchmarks based outside the bloc two more years to obtain EU authorization for their indexes to be used by EU customers. Formal rubber-stamping of the deal is needed for the changes to come into effect.

Banks in Europe and the United States were fined billions of dollars for trying to rig Libor and its European counterpart Euribor, rates widely used as a reference for pricing home loans, credit cards and other products.

“Policymakers have bought time” said Markus Ferber, a senior member of the European Parliament, adding that the extension had avoided potential “chaos” in key areas like mortgage markets.

“Now it is for benchmark administrators to make good use of that time to get all benchmarks into conformity with the regulation as soon as possible.”

The rate-rigging scandal prompted the EU to pass a set of rules for benchmark providers, and compilers originally had until the end of 2019 to comply with tougher standards aimed at making it harder to manipulate benchmarks.

The compilers and users of benchmarks inside and outside the EU had warned they would struggle to be ready in time, raising the prospect of disruption in markets as users sought to avoid unauthorized benchmarks.

Despite their ‘non-critical’ tag, those benchmarks include some of the most high-profile global equity, currency and commodity indexes that are vital to the way the financial investment industry and some multinational firms function.

They range from bourses like Hong Kong’s Hang Seng that EU investors use to gain or hedge their exposures, to currency benchmarks including India and Russia.

A joint paper published in November by global derivatives industry body ISDA, the Global Financial Markets Association (GFMA), the Futures Industry Association (FIA) and the Emerging Markets Trade Association (EMTA) had raised serious concerns about the lack of preparation.

“Despite their misleading ‘non-critical’ labeling... third country benchmarks... are widely used by EU financial firms and corporates in hedging commercial activities and investments abroad,” the Association for Financial Markets in Europe said on Tuesday.

“Therefore, this delay is extremely welcome news.”

Reporting by Huw Jones and Marc Jones; Editing by Catherine Evans and John Stonestreet

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