8 Financial services: benchmarks
| Committee's assessment
| (a) Legally and politically important (b) Politically important
|
| Committee's decision | Not cleared from scrutiny; further information requested
|
| Document details | (a) Draft Regulation about benchmarks used in the financial services sector; (b) Opinion of the European Central Bank on document (a)
|
| Legal base | (a) Article 114 TFEU; co-decision; QMV (b) —
|
| Department | HM Treasury
|
| Document numbers | (a) (35328), 13985/13 + ADDs 1-2, COM(13) 641
(b) (36347), —, CON/2014/2
|
Summary and Committee's conclusions
8.1 The draft Regulation (document (a)), held under
scrutiny since October 2013, concerns indices used as benchmarks[21]
in financial instruments, financial contracts or to measure the
performance of investment funds. It seeks to improve governance
of the benchmark process, prevent conflict of interests of benchmark
administrators[22] and
contributors,[23] enhance
the quality and accuracy of input data and methodologies used
by administrators and ensure adequate protection for consumers
and investors using benchmarks.
8.2 The House of Commons is the only national parliament
to have issued a Reasoned Opinion on this proposal (in November
2013). This challenged the supposed benefits of EU level action
— the enhancement of the single market, the promotion of
cross-border transactions and the protection of consumers —
as being outweighed by potential disadvantages. Disbenefits included
the unsuitability of harmonised rules to a wide variety of specific
benchmarks, non-alignment with the International Organisation
of Securities Commissions (IOSCO) standards, increased regulatory
burdens on benchmark administrators and contributors, the risk
to the independence of national statistics authorities and the
lack of provision for third country benchmarks. The Commission
responded to the Reasoned Opinion, maintaining that the proposal
was justified.
8.3 Opinions of the ECB are not legally-binding,[24]
but can have an influence on the progress of the negotiation of
a proposal to which they relate. Document (b), an ECB Opinion
which was published in January 2014 and at the request of the
Council and the European Parliament was only deposited by the
Government in October. It sets out the ECB's strong support for
the proposed Regulation and its wide scope. This is contrary to
the Government's preference for a Regulation with a narrow scope,
based on a proportionate approach of directing more regulatory
control towards the more critical benchmarks.
8.4 The Government now reports on progress in the
negotiation of document (a) towards a more proportionate and relative
approach to regulation of benchmarks and which is more favourable
to the UK's position. It also informs us about the Italian Presidency's
aim of securing a General Approach by the end of the year. In
addition, it further responds on the question of delayed deposit
of the ECB Opinion (document (b)) and its role in the negotiations
which we pursued in our last Report.
8.5 We thank the Minister for this helpful update
on the proposed Regulation. We welcome the apparent turn in the
negotiations towards the UK preference for a more proportionate
approach to the regulation of benchmarks and the inclusion of
those from outside the EU but in line with IOSCO standards.
8.6 We also welcome the Minister's clarification
as to officials' awareness of the ECB opinion and the role it
has played in the negotiations on the Regulation. We look forward
to hearing further from her with the Government's findings on
the question of the timing of the deposit of ECB opinions.
8.7 Pending the Minister's next update, we retain
both documents under scrutiny.
Full details of the documents:
(a) Draft Regulation on indices used as benchmarks in financial
instruments and financial contracts: (35328), 13985/13 + ADDs
1-2, COM(13) 641; (b) Opinion of the European Central Bank of
7 January 2014 on the Benchmark Regulation: (36347), —,
CON/2014/2.
Background and previous scrutiny
8.8 The background to document (a), an account of
its provisions, the draft Reasoned Opinion and our assessment
of the Commission's response are set out in our Twentieth, Twenty-third,
Thirty-ninth and Forty-seventh Reports of 2013-14. The debate
on the Reasoned Opinion took place on 28 November 2013.[25]
An account of the ECB Opinion (document (b)) is provided in our
last Report.[26]
Minister's letter of 15 November 2014
8.9 The Economic Secretary to the Treasury (Andrea
Leadsom) provides the following update on progress in the negotiations
of the Regulation:
"The Italian Presidency has made good progress
over the last few months, including circulating two Presidency
compromise texts. The Government has been satisfied with the direction
of travel in some of the amendments made by the Presidency, which
introduces a more relative and proportionate approach. This considers
the specific characteristics of benchmarks when determining the
regulatory regime to be applied to them, with some administrators
required to be authorised and some just having to register with
their regulator. We are seeking to expand upon this approach in
negotiations, in order to ensure that regulators are able to concentrate
their resources on the administrators of more important benchmarks.
"Also discussed in some detail is the issue
of benchmarks from outside the EU, and whether firms in the EU
will be able to utilise them once the Regulation is in force.
We have argued in favour of finding a solution that allows use
within the EU for benchmarks that can prove they are administered
in line with internationally agreed International Organization
of Securities Commissions (IOSCO) standards. This line of
argument has been well received amongst other delegations and
the general view now appears to be that the regime proposed by
the European Commission is not appropriate and needs to be amended
so that it is fit for purpose. Council is now in the process of
discussing what an acceptable regime for non-EU benchmarks would
look like."
8.10 She adds:
"In addition, the European Parliament began
their consideration of the proposal in November. In public statements
key Member of the European Parliament working on this proposal
have highlighted they are keen to ensure proportionality in the
text and identified the regime for non EU benchmarks as an area
that needs to be improved as the Commission proposal in this area
is not appropriate."
8.11 Turning to the issue of the delayed deposit
of the ECB Opinion she says that:
"Treasury officials were well aware of this
document following its initial publication, and it has informed
their work on the dossier. Similarly, the Opinion has itself contributed
to the developing negotiations over the course of this year, the
reference in the timetabling section EM was intended to make clear
that it had not been subject to Ministerial level discussion.
"With regards the implications for scrutiny
processes and the timeline for deposit of ECB Opinions, this is
something being considered across Government, and we will write
to you with our findings."
8.12 The Minister finishes her letter by saying that
the Italian Presidency is aiming to secure a General Approach
by the end of the year. She comments that before any agreement
can be made there are still serious issues remaining to be resolved.
Previous Committee Reports
(a) Fifteenth Report HC 219-xv (2014-15), chapter
8 (22 October 2014); Forty-seventh Report HC 83-xlii (2013-14),
chapter 12 (30 April 2014); Twenty-third Report HC 83-xxi (2013-14),
chapter 5 (20 November 2013); Twentieth Report HC 83-xix (2013-14),
chapter 4 (30 October 2013); (b) Fifteenth Report HC 219-xv (2014-15),
chapter 8 (22 October 2014).
21 Defined in the proposal as "any index by reference
to which the amount payable under a financial instrument or a
financial contract, or the value of a financial instrument is
determined or an index that is used to measure the performance
of an investment fund". Back
22
Defined in the proposal as "the natural or legal person that
has control over the provision of a benchmark". In practical
terms this means those responsible for the establishment, design,
production and dissemination of a Benchmark. Back
23
Defined in the proposal as "a natural or legal person contributing
input data". This is data used by the administrator to determine
the benchmark. Back
24
The ECB's competence to produce an opinion is based on articles
127(4) and 282(5) of the TFEU. Back
25
Stg Co Deb, European Standing
Committee B, 28 November 2013 cols. 3-10. Back
26
Fifteenth Report, HC 219-xv (2014-15), chapter 8 (22 October 2014). Back
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