The Financial Conduct Authority is planning to expand the senior managers and certification regime (SMCR) to benchmark administrators after manipulation scandals resulted in over £2bn worth of fines but few consequences for executives.
Libor administrator ICE Benchmark Administration is among the firms that would fall under the extended regime.
The SMCR is already being extended to 47,000 firms in December, but benchmark administrators have only recently become authorised firms under the EU benchmarks regulation. The SMCR was created in response to the 2008 banking crisis but the government decided to extend it to all financial services firms in 2015.
In a consultation paper published on Friday the FCA proposed the industry joins the regime from 7 December 2020.
FCA fines for benchmark manipulation
“Benchmark manipulation scandals have shown the impact on markets of poor controls and weak governance around the benchmarking process,” the consultation paper said.
“We consider that making individuals within benchmark administrators more responsible and accountable for their conduct is an important part of ensuring that markets and consumers can have confidence in the benchmarks they administer.”
It highlighted more than £2bn worth of fines were handed out for market manipulation between 2012 and 2015, stating this indicated the potential benefits from improving the quality of benchmarks.
Libor is among the most notable examples of benchmark manipulation with its administrator, ICE Benchmark Administration (IBA), falling under the regime. Fines were also handed out for manipulation of gold and FX benchmarks.
Libor, FX and gold benchmark manipulation fines 2012-2015
| Date | Fine | |
| Barclays FX failings | May-15 | £284m |
| UBS FX failings | Nov-14 | £234m |
| Deutsche Bank Libor and Euribor failings | Apr-15 | £227m |
| Citibank FX failings | Nov-14 | £226m |
| JPMorgan Chase Bank FX failings | Nov-14 | 222m |
| RBS FX failings | Nov-14 | 217m |
| HSBC FX failings | Nov-14 | 216m |
| UBS Libor failings | Dec-12 | 160m |
| Rabobank Libor failings | Oct-13 | 105m |
| Lloyds Bank of Scotland Libor and BBA Repo failings | Jul-14 | 105m |
| RBS Libor failings | Feb-13 | £87m |
| Barclays Libor failings | Jun-12 | £60m |
| Barclays gold failings | May-14 | £26m |
| ICAP Libor failings | Sep-13 | £14m |
| Martin Brokers Libor failings | Mar-14 | £630,000 |
Source: FCA
The FCA plans to include benchmark administrators in the mid-tier of the SMCR, given they provide “critical market infrastructure” and the accuracy and integrity of benchmarks important for the pricing of financial instruments and contracts.
A fifth of benchmark administrators are expected to request a waiver so they become part of the lowest-tier of the SMCR. Alternatively, large benchmark providers can opt into the “enhanced” tier.
Benchmark administration firms face one of costs between £800,000 and £2.4m and ongoing costs between £50,000 and £220,000, according to FCA calculations.
But it said the fines levied between 2012 and 2015 show “potential benefits from improving the quality of benchmarks significantly outweigh the costs”.
