UPDATE 1-Banking, market watchdogs push for changes to Euribor
LONDON, Jan 11 (Reuters) - Pan-European bank and financial market regulators called on Friday for a reduction in banks' influence on how the Euribor benchmark rate is set and seeking more regular checks to ensure figures are not 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 recent 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. They 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 in the health of 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. In a bid 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, in 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. One of the heads of Euribor-EBF, Cedric Quemener, told Reuters earlier this week the organisation was prepared to make any changes requested of it and said it planned to have more academics and former industry experts to watch over the banks. A complete unravelling of Euribor, which could happen if banks continued 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." It also called for Thomson Reuters to "have its own Code of Conduct related to reference-rate setting," and perform "internal audits and undergo a once-a-year external audit carried out by Euribor-EBF." "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.