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Libor lies still

The FT reports that the EC has abandoned plans to move LIBOR supervision to the French-based ESMA. The EC legislative proposals regarding benchmark rates are set to be unveiled next week. In their latest incarnation, London will remain the primary authority for LIBOR, although under supervision from a college of member states, itself subject to binding mediation decisions by ESMA. Retaining a degree of domestic control over the scandal-ridden flagship benchmark is regarded as a victory for the UK Treasury, which had strenuously resisted the move- the EC also considered ESMA’s capacity to adequately supervise the process. The punitive effect of the proposals has also been diluted. Earlier drafts held rate contributors responsible for fully compensating users who suffered loss due to rate miscalculation or a rule-breach, this has devolved to remedies under national law. The most significant new power that remains, is that for “critical benchmarks” the regulators will have the ability to force banks to participate in the rate-setting process. However, this should not be regarded as a total climb-down by the EC; while short of Martin Wheatley’s proposals to criminalise rate-manipulation, a separate law passed by the European Parliament last week will see “rate-riggers” fined up to 15% of turnover. The law will come into force within two years.

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