FACTBOX-EU publishes draft rules for setting benchmarks
LONDON, Sept 18 (Reuters) - All market benchmarks will be regulated to stamp out rigging of the kind seen with the London Interbank Offered Rate or Libor, a draft European Union law said on Wednesday.
The following are the main elements of the draft law which will need approval from EU states and the European Parliament to become law, with changes likely.
* Benchmarks to be authorised by national authorities and undergo supervision. This rows back on earlier plan for the Paris-based European Securities and Markets Authority (ESMA) to regulate "critical" benchmarks such as Libor, oil.
* Critical benchmark defined as being used as a reference for at least 500 billion euros of financial instruments of notional value.
* College of supervisors for "critical" benchmarks with ESMA having the power to mediate in disputes with binding decisions.
* Administrator for a benchmark used as a reference in financial instruments traded on an exchange or in a contract to ensure it is compiled properly.
* Contributors must sign a code of conduct which sets out obligations. This goes further than global principles on benchmarks backed by the Group of 20 leading developed and emerging economies, drawing warnings that some contributors may withdraw.
* Banks must assess suitability for consumers where necessary, such as when drawing up home loan contracts that use a benchmark. This dilutes earlier push for contributors to pay for any losses a user suffers from breaches of the EU rules.
* Regulators can force banks and traders to contribute to "critical" benchmark if there are too few voluntary contributors.
* Draft law allows for some judgment in compiling benchmarks, in line with global G20 principles, stopping short of U.S. calls for benchmarks to be based only on transactions.
* Civil penalties for breaches of the EU rules include fines up to 500,000 euros on an individual, and up to 1 million euros or 10 percent of total annual turnover on a firm;
* Benchmarks compiled outside the EU can be used in the bloc only if compiled under rules similar to the EU law.
(Reporting by Huw Jones; editing by David Stamp)