Commission on Banking Standards, Evidence Session 25th October 2012,

Mr Martin Wheatley CB, Managing Director of the Consumer and

Markets Business Unit, FSA

Q262 Mr McFadden: Mr Wheatley, in your speech on 28 September, which you called “Pushing the reset button on LIBOR”, you talked about other benchmarks, too. If LIBOR was fixed and fiddled, how can the public trust other key benchmarks-the oil price, for example? Our constituents have a strong perception that the oil price rises very quickly, but when the oil price falls, if it falls at all, it falls very slowly. How can we trust other benchmarks when we know that the foundation of the financial system was being fiddled?

Martin Wheatley: What we have done post LIBOR is to set up a piece of work that will be done under the auspices of IOSCO, the global regulatory body, and that will look at other benchmarks. It has taken on the task of asking, “Which are the global benchmarks that are important?”-oil clearly is one of them-and, “What are, in our view, the features of good benchmark construction, design and operation?” Then there will be a testing process as we look at each of those benchmarks and assess them against that. I hope that people will get some confidence as we go through that process-we have not done it yet-that we, as regulators, have started to turn our attention to these other areas. But the truth is-maybe it is a gap in the system-benchmarks typically are not regulated activities, so they are not caught. They are not under our authority and they are not under any of the other authorities, so one of the big questions for us is the extent to which all of them should be regulated activities.

Q263 Mr McFadden: One of the recommendations of your LIBOR report is that of course the setting of LIBOR should be a regulated activity.

Martin Wheatley: Yes.

Q264 Mr McFadden: So what are the UK authorities doing, drawing from the lessons of LIBOR? What are the UK regulatory authorities going to do now to extend that philosophy to other key benchmarks that affect the economy?

Martin Wheatley: The first thing is that the Government are working through some changes that we have recommended to the law to make market abuse and insider trading applications apply to the setting of LIBOR, so that will be put into UK law. At European level, there is a move, under market abuse regulation, to make all benchmark manipulation a criminal act, so under European law, it will extend to other benchmarks. In terms of what we are doing as a regulator, what the authorities are doing, we are looking at each of these other benchmarks that exist in the UK and starting the process of assessing how they operate and what changes need to be made, if any, and then working out what recommendations we would need to make. But the truth is that they are not under our authority. That is the difficult part. None of these benchmarks is today under our authority.

Q265 Mr McFadden: Yes, but we are an important economy. If the UK Government, the UK regulator, said, “We think that these things should be more closely regulated; we think there is a case for looking at how much they can be trusted,” that view would carry weight internationally, wouldn’t it?

Martin Wheatley: Yes it would, and that is why I say that there is that piece of work that is operating internationally and plans to report in March next year. That will look globally at benchmarks and the extent to which we can trust them, frankly.