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Brussels launches consultation on manipulation of indices

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  • Brussels launches consultation on manipulation of indices

EUROPE - The European Commission has launched a consultation on the use of financial indices serving as benchmarks, with the view to introducing possible regulatory measures.

Brussels is seeking input from citizens, organisations and public authorities to implement a potential regulatory framework for the production and use of indices.

According to the consultation, the framework will cover all benchmarks - including interest rates such as LIBOR, commodities and real estate price indices.

Michel Barnier, commissioner for internal market and services, said: "The international investigations underway into the manipulation of LIBOR have revealed yet another example of unacceptable behaviour by banks.

"Doubts about the accuracy and integrity of indices can undermine market confidence, cause significant losses to consumers and investors, and distort the real economy."

Barnier also stressed that the Commission had already acted "quickly" to amend its legislative proposals on market abuse.

"However," he added, "changing the sanctions regime alone may not be sufficient. Wider work is required to regulate how indices and benchmarks are compiled, produced and used."

In July, Brussels amended a regulation and a Directive on insider dealing and market manipulation, initially tabled on 20 October 2011.

The amendments made to the regulation and the Directive consisted of extending their scope to include benchmarks, as well as introduce the definition of the 'offence of market manipulation'.

One more amendment was made to the Directive to include the concept of the criminal offence of 'inciting, aiding and abetting an attempt' to manipulate benchmarks.

The Commission affirmed back in July that those amendments would "clearly prohibit" the manipulation of benchmarks, including LIBOR or EURIBOR, and make such manipulation a criminal offence.

Stakeholder will have until 15 November to respond to the consultation. 

The Commission's move comes as pension funds across Europe try to assess the impact of the LIBOR rate-fixing scandal.

Swedish buffer fund AP7 and Dutch pension provider PGGM are among the investors examining the potential consequences of such a manipulation.

Christian Ragnartz, CIO at AP7, told IPE: "All non-competitive and manipulated prices risk being sub-optimal and hence lead to different inefficiencies and therefore costs, especially in the long run.

"These kind of structural problems could potentially alter the way the fund decides to implement its strategies and with whom."

Ragnartz went on to say that AP7's legal counsellors were looking into potential law claims. Depending on their recommendations, the fund will then decide what "format" those claims might take, he said.

In a previous interview with IPE, Tom Hibbert, partner at law firm Reynolds Porter Chamberlain (RPC), noted that pension funds could issue two types of claims against banks involved in the LIBOR manipulation scandal, one being a 'breach of contract', the other being a 'misrepresentation' claim.

However, it still remains unclear whether the attempt to manipulate LIBOR necessarily affected pension funds "negatively".

A number of European pension funds contacted by IPE declined to comment on the potential impact, arguing that pension funds could have actually been impacted "positively" if they ended up paying less for the derivatives trades they entered into at the time the LIBOR rate was manipulated.

A PGGM spokesman told IPE the scheme was "concerned" about the scandal, which "increases the distrust in the financial sector and affects PGGM and its institutional clients".

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