UPDATE 2-Banking, market watchdogs push for changes to Euribor
By Marc Jones LONDON, Jan 11 (Reuters) - Pan-European bank and financial market regulators called on Friday for a reduction in banks' influence on the Euribor rate-setting process and more regular checks to ensure the figures weren't manipulated. The European Banking Authority (EBA) and European Securities and Markets Authority (ESMA) released an 11-point plan to improve the Euribor bank-to-bank lending rate and prevent a repeat of the price fixing scandal that has engulfed such benchmarks. Euribor and its larger counterpart Libor are Europe's key gauges of how much banks pay to borrow from their peers and are used to set the prices of swathes of financial products, from some mortgages to more complex derivatives. They also are a key indicator of financial market tension. When the financial crisis hit in 2008, interbank rates soared as trust between banks crumbled. The future of Euribor has been under scrutiny recently because of a string of pullouts by banks, including heavyweights Rabobank and Citi, looking to protect themselves from any fallout from the benchmark price-fixing scandal. The Libor scandal toppled the leadership of Britain's Barclays and cost UBS $1.5 billion in fines last year. Other banks are also bracing for huge fines. Seeking to reverse the recent spate of pullouts, EBA and ESMA called for national supervisors to encourage "all banks active in euro money markets to participate in the Euribor panel." But in order to avoid a repeat of the fixing scandal it called for Euribor-EBF, the body that runs Euribor and which has only three full-time staff, to assume greater responsibility for the rate and the way it is calculated and published. The proposals are broadly in line with those put forward by the European Central Bank late last year and come as the European Commission is putting the finishing touches on its own more binding recommendations, expected as soon as April. Banks, where possible, should base their daily Euribor submissions on actual transactions rather than estimates and should not have employees that could potentially benefit from manipulating the rate involved in the submission process, the two said. "The recommendations focus on requests to strengthen Euribor panel banks' internal governance arrangements including a code of conduct with emphasis on identifying and managing internal conflicts, internal control arrangements (including audits), record keeping and comparison with actual transactions," the EBA said in a statement. SIX MONTH DEADLINE The watchdogs would like to see the recommended changes implemented within the next six months. Guido Ravoet, chief executive of Euribor-EBF, said the organisation was prepared to make the changes requested of it and planned to have more academics and former industry experts to watch over the banks. "Six months is sufficient time to make these adjustments," Ravoet told Reuters. "We have information that the 39 banks on the panel will stay on board, but we need to give them comfort with regard to their contributions." A complete unravelling of Euribor, which could happen if banks continue to pull out, would throw the trillions of euros of financial products that price off the rate into confusion. "Let us take the opportunity to raise with you our concern over potential disruptions to the continuity of Euribor from the termination of contributions on the part of individual banks," EBA and ESMA said as they called for national regulators to encourage their banks to participate in Euribor. Thomson Reuters compiles and publishes the daily Euribor figures for Euribor-EBF. EBA and ESMA recommended the information provider should keep "clear records of all submissions from each panel bank over the years, including data on panel banks which were either not submitting or were submitting flawed or questionable quotes over certain days or longer periods." "We welcome and will be ready to implement any additional measures recommended by benchmark sponsors and regulators to create more robust processes and benchmarks for the industry," a spokeswoman for Thomson Reuters said. INVESTIGATION OVERLOAD Rabobank, which became Europe's highest profile name to quit Euribor last week, said it had no plans to rejoin the benchmark following the EBA/ESMA recommendations. Banks remain primarily focused on the European Commission's recommendations in the coming months and its separate anti-trust cartel probe that is ongoing. The International Organisation of Securities Commission (IOSCO) said on Friday it too planned to take a deeper look into the impact of interbank rate rigging. Martin Wheatley, the head UK regulator who recently laid out plans to overhaul Libor, and Chairman of the U.S. Commodity Futures Trading Commission, Gary Gensler, will spearhead its efforts. "The IOSCO Consultation Report will be critical to developing international principles for benchmarks and possible mechanisms and protocols for a smooth transition to new benchmarks when and if needed," said Gensler. Whereas Wheatley's overhaul stripped the British Banking Authority of the responsibility of running Libor, Euribor-EBF looks set to maintain its role following the EBA and ESMA review.