London may be stripped of its control over the scandal-hit Libor lending rate by the European Commission who are considering handing over supervision to the Paris-based European Securities and Markets Authority (ESMA), according to the Financial Times.
Though it may not be passed into law before next year’s European parliamentary elections, the FT said the regulation is due to be published this summer.
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Countries running Libor, Euribor or other "critical union benchmarks" would be under the direct supervision of ESMA, the FT reported, citing a draft copy of the European Commission’s proposal.
Most indices’ administrators, however, would be run by their home country.
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By GlobalDataBrussels’ proposal requires regulators’ go-ahead to set any benchmarks used to reference an exchange-traded financial instrument or a financial contract.
A spokeswoman for Michel Barnier, the European commissioner in charge of regulation, was quoted saying, "The proposal will establish rules of good governance to ensure greater transparency, manage conflicts of interest and to ensure the representativeness of the benchmarks. It will also establish a framework for the supervision of benchmarks, with penalties for non-compliance with established principles."
Under fire
Most banks – among 16 global banks that set Libor, the interbank lending rate, by giving daily estimates of how much it would cost them to borrow funds from other banks for varied periods of time – are under investigation by authorities in Europe, Japan and the US.
They have been accused and suspected of rigging the rate between 2007 and 2010.
One US regulator also suggested in April that Libor and its European counterpart, Euribor, be scrapped and replaced with alternatives based on market transactions.
