European Parliament agrees mandate for regulation of financial benchmarks

The EU proposal to make benchmarks more reliable and less at risk of manipulation moved forward today after the European Parliament cleared the way for negotiations with the Council and the Commission to start next month.

New standards were proposed in September 2013 in the wake of the alleged manipulation of various benchmarks including inter-bank offered rates and other benchmarks, such as those for foreign exchange (FX) and commodities, including gold, silver, oil and biofuels.

The proposed EU rules aim to improve the functioning and governance of benchmarks that are produced and used in the EU in financial instruments such as bonds, shares, futures or swaps, and in financial contracts such as mortgages.

”Consumers ultimately have to pay the price when benchmarks are manipulated or unreliable as this can increase the cost of their mortgage repayments or the returns on their pension funds,” said Jonathan Hill, EU commissioner responsible for financial stability, financial services and capital markets union. ”Our proposal will put in place rules for safer benchmarks across the EU.”

A benchmark is an index or indicator calculated from a representative set of data or information that is used to price a financial instrument or financial contract, or to measure the performance of an investment fund. Examples include the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR), both benchmarks for inter-bank interest rates; oil price assessments and stock market indexes. Benchmarks play a crucial role for consumers as they help determine the mortgage payments of millions of households, while in the financial industry, for example, benchmarks determine the prices of many derivatives.