Brussels looks to strip London of Libor oversight

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Brussels is set to strip London of its oversight of Libor and hand it to the European Securities and Markets Authority following last year’s rate rigging scandal. 

A draft of the European Commission’s proposals, seen by the Financial Times, aims to move direct supervision of Libor to ESMA, which is based in Paris. 

This comes despite the Financial Conduct Authority’s review into Libor which was published in September. The review set out 10 recommendations to improve the Libor system.

FCA chief executive Martin Wheatley told the FT in May the Libor benchmark is likely to be replaced by a “dual-track” system where survey-based lending rates run alongside transaction-linked indices. 

Wheatley said a parallel system would provide continuity for holders of $350tn (£228tn) in existing contracts that reference Libor, while also paving the way for a new benchmark tied more closely to objective data.

However Brussels’ proposals would see those running Libor and Euribor and other “critical union benchmarks” come under the direct oversight of Esma.

The draft says: “Certain critical inter-bank interest rate benchmarks may have effects in and involve contributors, administrators and users in more than one member state meaning that the supervision of such a benchmark by the competent national authority of the member state where it is located will not be efficient and effective in terms of addressing the risks.

“For critical union benchmarks, such as Euribor and Libor, it is therefore necessary that Esma is empowered to supervise such benchmarks.”

The FT says supervisors of benchmarks would be empowered to seize documents, demand market information, gain access to traders’ systems in commodities markets, suspend trading of the financial instrument that references a benchmark, freeze assets and correct mistakes.

Last year, Royal Bank of ScotlandUBS and Barclays were hit with billions of pounds worth of global fines after their traders fixed Libor rates.