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Seven benchmarks to join LIBOR on the hot seat

On 25 September 2014, the “Fair and effective markets review” in the UK published its “Recommendations on additional financial benchmarks to be brought into UK regulatory scope” (dated August 2014), along with the consultation document.

This interim deliverable focuses on fixed-income, currency and commodity (FICC), UK-based benchmarks i.e. where administrators and contributors are physically located in the UK. The final report will be released in June 2015.

The review recommends that the following benchmarks be brought within the scope of the UK regulation:

  • Sterling Overnight Index Average (SONIA)
  • Repurchase Overnight Index Average (RONIA)
  • WM/Reuters; FX benchmark rates (WMR)
  • ISDAFix
  • ICE Brent Futures
  • LBMA Silver Price
  • London Gold Fix

Each of these benchmarks is regarded as “major”, in regard to a number of indicators, including the number and value of financial contracts directly or indirectly linked to the benchmark, the range of different usages to which the benchmark is put, and the degree of market recognition.

The UK proportionate approach continues to be in sharp contrast with the EU proposed regulation where a massive number of benchmarks would be covered, without direct relation to their systemic importance.

The review recognises that the UK framework will likely be superseded by the upcoming EU regulation, but only when it starts applying in December 2015. Meanwhile, the UK measures might echo the FSB-led move away from LIBOR to overnight index swaps (OIS), closely related to SONIA and RONIA, while ensuring a deserved close scrutiny for some of the benchmarks (e.g. London Gold Fix),  already under investigation by the regulators.

The deadline for responses to the consultation is 23 October 2014.

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