The Monetary Authority of Singapore (MAS) is proposing tough new laws to criminalise and penalise attempts to manipulate financial benchmarks, such as those used to set home loans.
In response to evidence of attempted rate rigging exposed by MAS yesterday, banks here have promised to enhance the way they set benchmarks and the controls surrounding the process.
MAS says a financial benchmark is any price, estimate, rate, index or value used to determine interest rates and prices of financial products such as loans or derivatives investment products.
One of the best known is the Singapore Interbank Offered Rate (Sibor), against which most home loan rates are pegged here.
In a consultation paper put out yesterday, the regulator proposed criminal and civil sanctions in the Securities and Futures Act (SFA) against anyone who tries to manipulate any financial benchmark.
These would be similar to existing laws in the SFA against false trading and the manipulation of securities, MAS said.
Up to now, banks here have been left to govern themselves when it comes to setting financial benchmarks. But given reviews around the world, MAS said it believes there is scope for formal government regulation there too.
MAS has proposed to regulate the activities related to the setting of "key" financial benchmarks. For now, these are Sibor, the Swap Offered Rate (SOR) and foreign exchange benchmarks. MAS could designate any other benchmark a "key" one if it feels it is susceptible to manipulation and is of systemic importance.
The Association of Banks in Singapore (ABS), which administers key benchmarks, and the banks that set them, will also be subject to new rules. For instance, ABS will have to establish regular monitoring and surveillance of benchmark submissions and put in place systems to identify and mitigate conflicts of interest.
The banks that set benchmarks will have to appoint an external auditor to conduct annual reviews of its benchmark submission activities. MAS also proposed to enhance its powers to compel banks to be benchmark submitters, so there will always be a big enough pool of them, as a benchmark-setting panel that is too small would increase the risk of manipulation.
ABS and the Singapore Foreign Exchange Markets Committee (SFEMC) said they have taken steps to enhance the transparency and efficiency of the process. For example, they will get banks to calculate benchmarks by using market trading data rather than by submissions. However, Sibor will still be set the same way as before because it reflects each bank's inter-bank borrowing cost. Sibor is calculated with reference to surveys from banks.
But ABS and SFEMC said they have strengthened the governance of this process. For example, they are refreshing the panel of contributors to Sibor and are forming an oversight committee to supervise benchmark administration.
The industry will also put in place reference checks so that employers will be aware if the prospective joiner is someone who has been implicated in attempts to rig a benchmark.
Banks here, including UOB, said they will implement the measures and strengthen their policies. DBS said it has taken steps to enhance controls on benchmark submissions and will further review areas of possible improvement.
An ANZ spokesman said: "We believe the new rate setting governance framework, and the process announced by the ABS, will further cement Singapore's reputation for fiduciary standards and as a global financial hub."
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