FCA evaluates bringing additional benchmarks into the regulatory and supervisory regime

FCA has today published Evaluation Paper 18/2 on the impact of bringing additional benchmarks into the regulatory and supervisory regime. The paper is the second of a new series of FCA evaluations on its past interventions.

Background

Misconduct and benchmark manipulation cases and FSA investigations led the Government to ask Martin Wheatley to establish an independent review of the LIBOR system. His review recommended that FCA should regulate LIBOR and in April 2013, it became the first regulated benchmark.

The Fair and Effective Markets Review (FEMR) recommended that HM Treasury should extend the existing regulatory regime to include seven additional benchmarks (SONIA, ICE Swap Rate, WM/R 4 pm closing spot rate, LBMA Gold and Silver Price, ICE Brent Index and RONIA) into the FCA’s regulatory regime.

Aims of the evaluation

FCA wanted to understand:

  1. The impact of the Benchmarks Instrument 2015 on markets and firms’ costs; and
  2. Whether the intervention met its objective of increased benchmarks’ robustness, restoring market confidence.

Findings

FCA said its findings illustrate that its “interventions were beneficial for already liquid markets” but for less liquid markets the “perceived increase in regulatory risk may have contributed to a further reduction of the liquidity observed.”

Lessons learned

FCA has said that the lessons learned my not read across directly to a similar intervention in another market but has provided useful insight in helping them “anticipate potential ways of reducing harm and the likely impact of doing so.”