By Marc Jones
LONDON, Jan 11 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
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
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
"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.
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
"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