Financial benchmarks: proposing a governance framework based on stakeholders and the public interest

Abstract

Regulatory regimes for financial benchmarks have been introduced in the wake of benchmark manipulation in a number of non-equities markets. Although such regulatory responses introduce various measures to improve the governance processes relating to the production of financial benchmarks, this article suggests that the current regulatory designs can be improved in order to harness the benefits of market-based governance and yet meet the objectives of regulatory governance. This approach advocated in this article as a proportionate and appropriate form of regulatory capitalism. The article argues that the existing regulatory regime in the UK, the proposed regulatory framework in the EU and the IOSCO–OICU recommendations are based on achieving some balance between market-based and regulatory governance for benchmarks, but certain aspects of these regimes could compromise regulatory goals while not optimally harnessing market-based governance. The article advocates the adoption of a user-centric analysis to first determine the nature of financial benchmarks and argues that the scope and design of regulation for financial benchmarks should be based on that fundamental analysis. The regulatory framework should then address the healthy balance between market-based and regulatory governance for the benchmarks determined to be appropriately subject to regulation. This article critically evaluates the UK, EU and OICU–IOSCO regimes and makes recommendations that are theoretically rooted and are capable of international adoption.