London could be stripped of the regulation of key benchmarks such as Libor and Paris handed the authority to oversee similar controversial yet crucial pricing systems, under proposals circulating in Brussels.
The pan-European securities regulator based in Paris would also take control of benchmark pricing of commodities and energy, which is already being investigated by regulators in London.
After the Libor rate-rigging scandal was exposed a year ago, with a £290m fine for Barclays, the new Financial Conduct Authority in London took over regulation of the benchmark lending rate, which is used to price £190tn of contracts around the world.
Until then it had been an unregulated market, with Libor – the London interbank offered rate – managed by trade body the British Bankers' Association.
But a draft of the regulation being drawn up in Brussels proposes giving the European Securities and Markets Authority (ESMA) direct regulation of Libor and other benchmarks, which have been the subject of scrutiny since the interest rate-rigging scandal was exposed.
According to the draft of the consultation paper, which is not due to be published for another two months, the other key interest-rate benchmark that has been rigged – Euribor – would also be regulated in Paris.
According to a draft seen by the Financial Times, regulation should be moved to ESMA because the benchmarks have an impact in more than one member state.
"Certain critical inter-bank interest-rate benchmarks may have effects in and involve contributors, administrators and users in more than one member state, meaning that the supervision of such a benchmark by the competent national authority of the member state where it is located will not be efficient and effective in terms of addressing the risks," according to the draft.
The UK is likely to fight the proposals, particularly over commodities and energy benchmarks, which are managed by price-reporting agencies. The European commission last month raided the offices of oil companies in an investigation into claims they may have "colluded in reporting distorted prices to a price-reporting agency [PRA] to manipulate the published prices for a number of oil and biofuel products".
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