As part of an effort to restore trust in the scandal-hit Euribor interest rate, regulators said the number of maturities that make up the benchmark for trillions of euros of lending should be cut from 15 to seven.
Europe’s top banking and markets regulators told the European Banking Federation, which oversees Euribor, to strengthen governance procedures to ensure no banks try to manipulate the rate. Cutting the number of tenors would “have the benefit of simplifying” submissions.
The measures “will give clarity to benchmark providers and users,” Steven Maijoor, chairman of the European Securities and Markets Authority, said in an e-mailed statement today. They “are an immediate step to be taken in advance of potential wider changes in the supervisory and regulatory framework for financial benchmarks.”
Global watchdogs are levying fines and criminal penalties against lenders accused of fiddling interest-rate benchmarks such as Euribor and Libor, the London interbank rate. Raiffeisen Bank International AG and Rabobank Groep said this year they would leave the 40-strong Euribor panel, while Citigroup Inc. and DekaBank Deutsche Girozentrale left the group of euro rate- setters last year.
The benchmarks are meant to represent the rate at which banks can borrow from other lenders in a specific currency over various periods. Authorities are investigating whether more than a dozen banks altered their benchmark-rate submissions to profit from derivative trades or to appear more financially stable.
Nighttime Deal
The three-week maturity should be cut from Euribor, along with the two, four, five, seven, eight, 10 and 11-month tenors as a minimum, the regulators said. The EBF should perform regular governance audits and publicly disclose the results, ESMA and the European Banking Authority said. The proposed changes weren’t agreed upon by the regulators until last night.
“We broadly support the recommendations and they go in the direction of the reforms we have started discussing and implementing,” Florence Ranson, a spokeswoman for Euribor-EBF, the non-profit association in Brussels that sets Euribor rates, said in a phone interview.
The International Organization of Securities Commissions, a global regulatory body, also said it’s seeking views on possible measures to overhaul the setting and governance of such rates, according to a statement on its website today.
The way benchmarks such as Euribor are set raises concerns over “potential inaccuracy or manipulation,” IOSCO said.
Accurate, Plausible
Organizations in charge of setting benchmark rates should seek to “verify the accuracy and plausibility” of the data they receive from banks and other market participants, according to the group, which said it may draw up a code of conduct.
The recommendations come less than a month after UBS AG, Switzerland’s largest bank, was fined $1.5 billion by U.S. and U.K. regulators for manipulating interest rates including Euribor. Barclays Plc was fined 290 million pounds ($467 million) in June last year for manipulating Euribor and Libor.
Regulators found that Barclays derivatives traders made at least 58 requests for Euribor submissions to be altered from September 2005 through May 2009, and that they coordinated with traders at other banks to manipulate Libor, including affecting specific rates when derivatives contracts are settled or reset.
At UBS, at least 45 bank employees, including some managers, knew of the “pervasive” practice of trying to alter rates, and a further 70 people were included in open chats and messages where attempts to manipulate Libor and Euribor were discussed, according to U.K. regulators.
Conduct Codes
The Royal Bank of Scotland Group Plc will be next in line to face sanctions.
The EBA set out guidelines for national supervisors, recommending they require their banks to have internal codes of conduct in place for Euribor submissions.
The report is an “important step towards ensuring that Euribor represents a transparent and reliable benchmark for financial transactions,” Andrea Enria, chairman of the EBA, said in an e-mailed statement.
The Stockholm interbank offered rate will also be pared down after the Swedish Bankers’ Association takes over the responsibility for setting the benchmark in March.
Stibor Maturities
The association said today that the number of Stibor maturities will be cut to six from eight. The group will establish a Stibor Committee, which will be responsible for monitoring the framework.
The changes recommended by the EU regulators mirror a streamlining of Libor last year.
The number of Libor reference rates should be cut to 20 from 150 by phasing out currencies and maturities in which trading is thin, Martin Wheatley, the U.K.’s chief markets regulator, said in a report.
Euribor is derived from a daily survey of interbank lending rates submitted by a panel of banks and conducted for Euribor- EBF by Thomson Reuters Corp. Three-month Euribor, which tracks bank-loan rates over that maturity, was set at 0.195 percent today.