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February 8, 2013

Never a better time to provide assurance for benchmarks

With the fine for RBS for its manipulation of LIBOR due imminently it has never been a more pertinent time to look at how to give businesses that provide benchmark information to regulators an assurance that the data and measurement is consistent and reliable.

This is an international issue; the reports of 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 and exchange rates. As a result confidence in benchmarks has been rocked and regulators have called for external assurance.

To help regain confidence in the markets Institute of Chartered Accounts in England and Wale’s Financial Services Faculty has 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.

We have published an exposure draft of a guide, Guidance for the performance of assurance work on benchmarks and indices, for providing assurance on benchmarks and indices. It has been produced because it will be required by many regulators, and demanded by stakeholders as part of a response to existing problems in various benchmarks.

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, the European Commission, the US Commodity Futures Trading Commission (CFTC), the Wheatley Review, and the UK Parliamentary Commission on Banking Standards.

While assurance is not yet mandatory for all submitters, recent CFTC regulatory penalties will require those banks to have assurance done on their interest rate benchmark submissions this year.

Though the interest rate benchmarks scandal served as the catalyst for this project, our guidance is both robust and broad so it can be applied to providing assurance on a wide range of benchmarks or indices. The guidance aims to provide a ‘bridge’ between the requirement to have assurance done and how to actually do it.

The guidance has been published as an exposure draft open for public comment with a final draft guidance to published in June 2013.

Michael’s previous blog post

Sharing auditors’ insights into the retail sector

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