The Commission has today published amendments to its October 2011 “Proposals for a Regulation on Market Abuse and for a Directive on Criminal Sanctions for Market Abuse” (which we discussed in this post). The amendments would criminalise the manipulation of benchmarks, including LIBOR and EURIBOR and all other benchmarks which “determine the amount payable under a financial instrument”.
The Commission’s press release is here, the EU Justice Commission’s press release is here and a set of FAQs is here.
The Commission proposes to achieve this criminalisation of benchmark manipulation through amendments to its draft Directive on Criminal Sanctions for Market Abuse:
“The amended proposal for a Directive would extend the scope of the criminal offence of market manipulation in the proposal for a Directive to cover the direct manipulation of benchmarks, if committed intentionally. The amended proposal would also require Member States to criminalise inciting, aiding and abetting the manipulation of benchmarks, as well as attempts at such manipulation.”
And to the draft Regulation on Market Abuse:
“Underlying assets or prices referenced in benchmarks can include equities (e.g. the FTSE 100 index), bonds (e.g. NASDAQ OMX fixed income), interest rates (e.g. LIBOR or EURIBOR), or commodities such as agricultural products (e.g. cocoa LIFFE London), metals (e.g. Gold COMEX) or oil (e.g. Brent oil ICE). All benchmarks are included in the amended proposal, provided that these determine the amount payable under a financial instrument. The amended proposal for a Regulation would prohibit natural or legal persons from transmitting false or misleading information, providing false or misleading inputs, or any action which manipulated the calculation of a benchmark, including the manipulation of benchmarks’ methodologies.”
Criticism of the Bank of England, and the coming of Euro area banking supervision
Announcing the Commission’s proposals today, the EU Justice Commission Viviane Reding laid into the Bank of England’s perceived failure to deal with the LIBOR issue and highlighted the moves to a single supervisory system for banks in the EURO area:
“I was not convinced by the action of the Bank of England – as the competent banking supervisory authority – in this case. I would have expected to see greater energy in reacting to calls – some made already over four years ago – for the elimination of incentives to misreporting. This did not happen.
This whole scandal of LIBOR fixing reveals major faults in the governance of this process. First, it reveals shortcomings about the way in which these inter-bank rates are calculated. These rates are a public good. As such there should be more public authority involvement in the monitoring of the reporting process and in the determination of the rates.
Second, these rates were supervised too generously. LIBOR is constructed by an UK association but as the LIBOR rates are so deeply ingrained in so many financial contracts it affects people across the entire Union and around the globe. Therefore, we need to Europeanise banking supervision to make it stronger, fairer and more effective.
In a few weeks the European Central Bank looks set to become the head of the European single supervisory system for banks in the euro area. This will end the often too ‘cosy’ relationship that exists today between national supervisors and banks in their home country. It will enable a fully rigorous and independent supervision of our banking union – at European level.”
Today’s proposals in detail
From the Commission’s press release:
“The Commission adopted today two amended proposals. The first is an amended proposal introducing the following changes to the proposal for a Regulation on insider dealing and market manipulation, adopted by the Commission on 20 October 2011:
- Amendment to the scope of the proposed regulation to include benchmarks;
- Amendment to the definitions to include a definition of benchmarks, based on an expanded version of the definition used in the proposal for a Regulation on Markets in Financial Instruments (MiFIR); benchmarks such as interest rate and commodities benchmarks are included;
- Amendment to the definition of the offence of market manipulation (article 8) to capture manipulation of benchmarks themselves and attempts at such manipulation; and
- Amendment to the recitals to justify the extension of the scope and the market manipulation offence to benchmarks.
The Commission adopted at the same time an amended proposal introducing the following amendments to the proposal for a Directive on criminal sanctions for insider dealing and market manipulation:
- Amendment to the definitions to include a definition of benchmarks;
- Amendment of the criminal offence of market manipulation to capture manipulation of benchmarks themselves; and
- Amendment of the criminal offence of “inciting, aiding and abetting and attempt” to include these behaviours in relation to the manipulation of benchmarks.
The Commission is not proposing to set the minimum types and levels of criminal sanctions at this stage, but wants to require each Member State to provide for criminal sanctions in its national laws to cover the manipulation of benchmarks.”
Next steps
The draft Regulation and Directive are working their way through the EU legislative process and are with the Parliament and Council for negotiation.
