February 23, 2014 8:19 am

Political infighting delays benchmark regulation

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A giant European Union flag hangs from La Pedrera to celebrate European Union Day in central Barcelona©Reuters

Investor groups have raised concerns that regulations aimed at setting tougher standards for benchmarks such as Euribor and improving investor protection have been delayed by political infighting in Brussels.

Europe’s economic and monetary affairs committee was last week expected to vote on benchmark proposals pulled together by Sharon Bowles, the committee’s UK Liberal Democrat chairperson.

The reforms would have set tougher standards for all published benchmarks used as a reference for exchange traded financial instruments or financial contracts, including Libor and Euribor, as well as increasing scrutiny of index providers such as MSCI and FTSE Group.

However, last-minute legal objections from the Social Democrat and Green political groupings led Ms Bowles to postpone the vote, with the regulations now not expected to be finalised before 2015.

Guillaume Prache, head of EuroFinuse, the investor lobby group, said the postponement was a “very big disappointment”.

“We were pushing for this kind of regulatory initiative following the first Libor scandal and other issues with benchmarks where the indices used by investment providers and fund managers were false or wrong,” Mr Prache said.

“Eurocrats are focusing too much on financial stability and not enough on individual investor protection. We don’t think this looks very good.”

A Brussels-based parliamentary worker, who wanted to remain anonymous, added: “You could certainly say it seems probable that Euribor will not be subject to the same standards as Libor, and that is not good.”

The regulation has been among the most heavily lobbied proposals in Brussels in recent years, drawing strong resistance from index providers and commodity houses.

European politicians are also divided over the scope of the regulations, which in their original form covered all indices, from Euribor to benchmarks that track the price of energy, commodities and even salmon.

Ms Bowles sought to tackle these divisions by allowing the European Securities and Markets Authority, the Paris-based supervisory body, to decide how to apply the regulations and ensure they are proportionate.

But many MEPs opposed limiting the scope of the regulations and had concerns about Esma being given extra powers.

Jean-Paul Gauzes, the French centre-right MEP, described the proposals as “half baked”, adding: “I don’t think we should hand over these top-level responsibilities to Esma [as] they don’t have the human or capital resources to be able to do that work properly.”

However, Syed Kamall, a UK Conservative MEP, said that the objections from the opposing politicians were “purely political”, designed to impress core voters ahead of European elections in May.

Joe Mealing, parliamentary assistant to Ms Bowles, added: “It is disappointing that these legal concerns were raised so late in the day, as the [Greens and Socialists] had been part of the process from the very beginning.

“Clearly there are critical benchmarks, such as Euribor, that need to be regulated as soon as possible, and any delay in voting does not help the situation.”

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