The impact of the EU benchmarks regulation on the EU financial system

Abstract

Benchmarks have unquestionably become a critical part of the financial system. Their unique functions have led them to become hardwired into an array of financial instruments and contracts. Given the continuously growing concerns related to market abuse, as well as the measures in place to prevent the manipulation of financial markets, it was deemed appalling that there was no official body regulating benchmarks. Following the market-rigging scandals related to LIBOR, European legislators recognized that the manipulation of benchmarks could disrupt financial markets and lead to significant losses in the real economy. As a result, authorities sought to introduce the EU Benchmarks Regulation; the first ever regulatory preventative framework established for the governance of benchmarks. The aim of this regulation is to restore trust in indices and provide official law for supervised data contributors, benchmark administrators and benchmark users, to use as policies in benchmark related activities. This purpose of this dissertation is to investigate the impact of the EU Benchmarks Regulation on the European financial system by determining the influence of the regulation on the functions of operators, regulators and supervisors. This is achieved through a complete understanding as to how benchmarks are constructed and further, how they can be manipulated. The research seeks to address any challenges related to the EU Benchmarks Regulation and whether or not it provides a harmonised approach to regulating benchmarks within Europe. Considering the limited number of experts locally, the research places additional focus on non-local parties to derive the desired results. The objective is to determine whether the EU Benchmarks Regulation is an effective regulatory tool in combatting the manipulation of financial benchmarks, in an effort to increase investor confidence and safeguard the integrity of financial markets.