RBI implements Bhaskar panel recos on financial benchmarks

RBI implements Bhaskar panel recos on financial benchmarks

The Reserve Bank of India (RBI) has asked the Fixed Income Money Market and Derivatives Association of India (FIMMDA) and the Foreign Exchange Dealers Association of India (FEDAI) to act as administrators of the Indian rupee interest rate and foreign exchange benchmarks.

“To overcome the possible conflicts of interest in the benchmark setting process arising out of the current governance structure of FIMMDA and FEDAI, an independent body, either separately or jointly, may be formed by FIMMDA and FEDAI for administration of the benchmarks,” said RBI.

In the case of benchmarks based on polled submissions, FIMMDA and FEDAI may select the benchmark submitters on the basis of their standing, market share in the benchmark/instrument linked to the benchmark and representative character. And, may put in place a code of conduct specifying various provisions, including hierarchy of data inputs for submissions as recommended by an earlier committee, RBI said.
The committee on financial benchmarks was chaired by P Vijaya Bhaskar, executive director of RBI, and RBI accepted the recommendations.

RBI says the benchmark submitters selected by the administrator have to necessarily participate in the polling process and comply with the various provisions specified in the code of conduct. “The benchmark submitters may put in place an internal board-approved policy on governance of the benchmark submission process. The policy may ensure that clearly accountable personnel at appropriate senior positions, with requisite knowledge and expertise, are responsible for benchmark submissions,” the central bank said.

It has asked these benchmark submitters to put in place an effective conflict of interest policy, which facilitates identification of potential and actual conflicts of interest with respect to benchmark submissions and lays down procedures to be followed for management, mitigation or avoidance of such conflicts. According to RBI, they may establish a maker-checker system to ensure integrity.