In the recent LIBOR scandal, serious concerns were raised about false submissions of banks’ estimated interbank lending rates, noted Wednesday the European Commission, adding that any actual or attempted manipulation of such key benchmarks can have a serious impact on market integrity, and could result in significant losses to consumers and investors, or distort the real economy.
On that backdrop, the European Commission acted Wednesday to address this kind of market manipulation, by adopting amendments to the proposals for a Regulation and a Directive on insider dealing and market manipulation, including criminal sanctions, initially tabled on 20 October 2011.
Today’s amendments will clearly prohibit the manipulation of benchmarks, including LIBOR and EURIBOR, and make such manipulation a criminal offence.
Vice-President Viviane Reding, the EU’s Justice Commissioner said, “Public confidence has taken a nosedive with the latest scandals about serious manipulations of lending rates by banks. EU action is needed to put an end to criminal activity in the banking sector and criminal law can serve as a strong deterrent. This is why we are today proposing EU-wide rules to tackle this type of market abuse and close any regulatory loopholes. A swift agreement on these proposals will help restore much needed confidence of the public and investors in this crucial sector of the economy.”
Internal Market and Services Commissioner Michel Barnier said, “The international investigations underway into the manipulation of LIBOR have revealed yet another example of scandalous behaviour by the banks. I wanted to make sure that our legislative proposals on market abuse fully prohibit such outrages. That is why I have discussed this with the European Parliament and acted quickly to amend our proposals, to ensure that manipulation of benchmarks is clearly illegal and is subject to criminal sanctions in all countries.”
A benchmark is any commercial index or published figure calculated by the application of a formula to the value of one or more underlying assets or prices, including estimated prices, interest rates or other values, or surveys by reference to which the amount payable under a financial instrument is determined. Underlying assets or prices referenced in benchmarks can include interest rates, or commodities such as oil, provided that these determine the amount payable under a financial instrument, such as a derivative. The Commission adopted today two amended proposals. The first is an amended proposal introducing the following changes to the proposal for a Regulation on insider dealing and market manipulation, adopted by the Commission on 20 October 2011:
- Amendment to the scope of the proposed regulation to include benchmarks;
- Amendment to the definitions to include a definition of benchmarks, based on an expanded version of the definition used in the proposal for a Regulation on Markets in Financial Instruments (MiFIR); benchmarks such as interest rate and commodities benchmarks are included;
- Amendment to the definition of the offence of market manipulation (article 8) to capture manipulation of benchmarks themselves and attempts at such manipulation; and
- Amendment to the recitals to justify the extension of the scope and the market manipulation offence to benchmarks.
The Commission adopted at the same time an amended proposal introducing the following amendments to the proposal for a Directive on criminal sanctions for insider dealing and market manipulation:
- Amendment to the definitions to include a definition of benchmarks;
- Amendment of the criminal offence of market manipulation to capture manipulation of benchmarks themselves; and
- Amendment of the criminal offence of “inciting, aiding and abetting and attempt” to include these behaviours in relation to the manipulation of benchmarks.
The Commission is not proposing to set the minimum types and levels of criminal sanctions at this stage, but wants to require each Member State to provide for criminal sanctions in its national laws to cover the manipulation of benchmarks. In its original proposal for a Directive, the Commission proposed to undertake a review in particular on the appropriateness of introducing common minimum rules on types and levels of criminal sanctions within four years of the Directive’s entry into force.