The Treasurer has announced that the Government has accepted recommendations from the Council of Financial Regulators (CFR), comprising the Reserve Bank of Australia, the Australian Prudential Regulation Authority, ASIC and Treasury, to strengthen regulation of the possible abuse and manipulation of financial benchmarks by banks from 1 January, 2018.

CFR Recommendations

The CFR has recommended that:

• significant benchmarks (as defined below) be covered by the regulatory regime;
• significant benchmarks be identified in a publicly accessible list that can be amended;
• administrators of significant benchmarks be required to hold a new, standalone, ‘benchmark administration licence’ unless granted an exemption, and the licence be supported by ASIC powers to write rules imposing obligations;
• an ‘opt-in’ mechanism be created to allow administrators of non-significant financial benchmarks to apply to be licensed if they meet licensing requirements and doing so has value;
• submitters to regulated benchmarks be required to comply with ASIC rules on regulatory matters related to benchmark submission, with benchmark administrators having primary responsibility for the operation of the benchmark;
• ASIC be given the power to write rules to compel submission to a significant benchmark as a last resort when necessary to support market functioning;
• the manipulation of any financial benchmark (significant or non-significant) be made a specific criminal and civil offence; and
• Bank Accepted Bills and Negotiable Certificates of Deposit be expressly made financial products for the purposes of the offence provisions of Chapter 7 of the Corporations Act 2001.

It is likely that five benchmarks will be defined as significant benchmarks:

• the Bank Bill Swap Rate (BBSW);

• Standard & Poor’s (S&P)/ASX 200 index;

• ASX Bond futures settlement price (formerly CGS yield curve survey);

• the cash rate (including the Total Return Index derived from the cash rate); and

• the Consumer Price Index.

The WM/Reuters Australian dollar foreign exchange benchmark could also be considered to be significant.

Timing

To achieve commencement by 1 January 2018, legislation would need to be considered by the Parliament in the 2017 Winter sittings to allow passage by end-2017.

Regulatory certainty will support:

• continued trade in the market underpinning the BBSW; and

• AFMA’s process to transfer its responsibility for the administration of the BBSW to a new administrator by providing some further clarity on the proposed regulatory landscape.