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February 6, 2013

LIBOR regulation prompts ICAEW assurance paper

With the UK’s new financial regulator the Financial Conduct Authority (FCA) expected to regulate the setting of interest rate benchmark LIBOR, the Financial Services Faculty of the ICAEW has published guidance on providing assurance on benchmarks and indices.

The exposure draft of the guidance, was produced as part of the debate on benchmark regulation following high-profile manipulation last year of LIBOR and EURIBOR, the interest rates at which London and European banks lend to each other. It addresses the fact that as part of expected FCA regulation, LIBOR submitters will likely be required to obtain external assurance over submissions.

ICAEW head of financial services Iain Coke commented: "The recent manipulation of LIBOR and EURIBOR will have wide ranging repercussions and potentially affect contracts worth trillions of dollars, from interest charged on loans to exotic derivatives. As a result confidence in benchmarks has been rocked recently and regulators have called for external assurance. To help regain confidence in the markets we have developed a framework to bring a level of consistency in assurance across institutions. External assurance, combined with strengthened governance and rules for the compilation of economically important benchmarks, can help restore public trust."

Coke continued to explain that the issue of assurance over benchmarks was likely to extend far beyond the LIBOR issue, and beyond the action of UK regulators. "Similar concerns have been raised over other economically important benchmarks, including in the energy and commodity markets. These have prompted a number of investigations by various market, regulatory and governmental authorities such as the International Organization of Securities Commissions (IOSCO), the European Commission, the U.S. Commodity Futures Trading Commission (CFTC), the Wheatley Review, and the U.K. Parliamentary Commission on Banking Standards."

The document, ‘Guidance for the performance of assurance work on benchmarks and indices’, has been published as an exposure draft open for public comment with a final draft guidance to be published in June 2013. It can be viewed from 10.00 am Wed 6 February at www.icaew.com/benchmarks

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