PwC's Managing upstream risk: Regulatory reform review - An asian perspective December 2013 | Page 21

2.8 Financial Benchmarks

2.9 Credit Rating Agencies

Update

According to a press release dated 4 December
2013, the EC fined 8 international FIs
approximately €1.7 billion for participating
in illegal cartels in markets for financial
derivatives covering the EEA. Four of these
institutions participated in a cartel relating to
interest rate derivatives denominated in the
euro currency. Six of them participated in one
or more bilateral cartels relating to interest rate
derivatives denominated in Japanese yen.
Joaquín Almunia, Commission Vice-President
in charge of competition policy, said: “What
is shocking about the LIBOR and EURIBOR
scandals is not only the manipulation of
benchmarks, which is being tackled by financial
regulators worldwide, but also the collusion
between banks who are supposed to be
competing with each other. Today’s decision
sends a clear message that the Commission is
determined to fight and sanction these cartels
in the financial sector. Healthy competition and
transparency are crucial for financial markets
to work properly, at the service of the real
economy rather than the interests of a few.”
The penalty is the biggest yet to be handed
down to banks for rigging the benchmarks
used to determine the cost of lending, one of
the most brazen violations of conduct since the
financial crisis. The other banks penalised are
Société Générale, JPMorgan and brokerage RP
Martin. Deutsche Bank received the biggest fine
of €725.36 million.

Update

On 2 December 2013 ESMA published a Report
identifying a number of deficiencies in the
processes for producing and issuing sovereign
ratings at the three largest CRAs, Fitch Ratings,
Moody’s Investors Service and Standard &
Poor’s. The key areas where ESMA identified
deficiencies requiring remedial actions by the
CRAs included the following areas and related
issues:
1. Independence and avoidance of conflicts
of interests. ESMA has concerns that in a
number of areas associated with conflicts
of interest and independence, the actual
failings or potential risks identified might
compromise the independence of the ratings
process and the quality of the credit ratings.
These include:
o the type of involvement of senior
management in sovereign rating
activities;
o the independent review function’s
participation in the sovereign rating
process;
o the research publication activities carried
out by CRAs;
o the involvement by certain non-rating
functions (e.g. communication) in the
rating process; and
o the implementation of the appeal
procedure.

The EC said it would continue to investigate
Credit Agricole, HSBC, JPMorgan and
brokerage ICAP for similar offences.

Banking | Regulatory Reform Review

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