Benchmarks underpinning markets from oil to currencies face tougher oversight under plans by global regulators to prevent any repeat of Libor-style fraud.
Rates should be based as much as possible on real transaction data, rather than estimates, and banks should tackle conflicts of interest, the International Organization of Securities Commissions, a Madrid-based group that harmonizes global market rules, said in guidelines published today.
Authorities are grappling with a growing number of rate-setting scandals. Global regulators have fined UBS AG, Barclays Plc and Royal Bank of Scotland Group Plc about $2.5 billion for distorting the London interbank offered rate, known as Libor, and similar benchmarks.
The measures are “an important step” in restoring the credibility of tarnished benchmarks, Martin Wheatley, chief executive officer of the U.K. Financial Conduct Authority and a co-head of the Iosco benchmark task force, said in a statement. “These principles set out clear and robust standards.”
Probes into potential rigging have expanded beyond interbank lending rates to include benchmarks underpinning energy prices, currency trades and derivatives.
The U.S. Federal Energy Regulatory Commission this week ordered Barclays and four former traders to pay a combined $487.9 million in fines, as part of an investigation of alleged manipulation of energy markets.
In a separate probe, the U.S. Commodity Futures Trading Commission is reading through 1 million e-mails and instant messages from traders at the world’s largest 15 banks and broker ICAP Plc for evidence of manipulation of the ISDAfix rate.
Gary Gensler, chairman of the CFTC, co-led the Iosco task force with Wheatley.
Organizations that administrate benchmarks will be required by regulators to “publicly disclose their compliance” with the guidelines within 12 months, Iosco said. The group will carry out a review in 18 months to see how well the measures have been enforced.
The Iosco standards require that benchmarks “be anchored by observable transactions and subject to robust governance processes,” Gensler said in the Iosco statement published on the group’s website.
Under the Iosco guidelines, firms involved in benchmark- setting will have to increase oversight of their employees who set the rates, and sign up to a code of conduct.