LIBOR CODE OF CONDUCT

Transcription

1 ICE BENCHMARK ADMINISTRATION LIBOR CODE OF CONDUCT ISSUE 5 Date f issue: 18 June 2018 ICE Benchmark Administratin Limited. All rights reserved. Fr permissin t cpy please cntact ICE Benchmark Administratin Limited. Any reprductin, republicatin, transmissin r reuse in whle r part requires ur cnsent. ~ 1 ~

2 CONTENTS 1. Intrductin 1.1 Purpse 1.2 Backgrund 1.3 Issue 5 f the LIBOR Cde f Cnduct 2. Glssary 3. Overview f the BMR 3.1 Purpse 3.2 BMR classificatin 3.3 Designatin f LIBOR under the BMR 3.4 Cde f cnduct requirements 3.5 Gvernance and cntrl requirements fr supervised cntributrs 3.6 BMR Annex I - systems and cntrls requirements 4. Input data requirements 4.1 Descriptin f Input Data 4.2 Types f input data 4.3 Quality and accuracy f input data 4.4 Quantity f input data 4.5 Pririty f input data 4.6 Frmat f input data 4.7 Frmat, frequency and timing f Submissins 4.8 Adjustments t input data 4.9 Prvisin f all relevant input data 4.10 Use f discretin when cntributing input data 4.11 Reprting f suspicius input data 5. Gvernance 5.1 Systems and cntrls 5.2 Required systems and cntrls ~ 2 ~

3 5.3 Cnflicts f interest 5.4 Submissin sign-ff 5. 5 Appintment f Submitters, training and cntrls 6. Cmpliance and audit 6.1 Annex I prvisins 6.2 Cmpliance 6.3 Audits 7. Recrd-keeping 8. Adherence t the Cde and review f the Cde ~ 3 ~

4 1. INTRODUCTION 1.1 Purpse In this LIBOR Cde f Cnduct ( LIBOR Cde r Cde ), ICE Benchmark Administratin Limited ( IBA ) sets ut the framewrk within which LIBOR Cntributr Banks are expected t perate. The Cde shuld be read in cnjunctin with Article 15 f the EU Benchmarks Regulatin ( BMR ) which states that, Where a benchmark is based n input data frm cntributrs, its administratr shall develp a cde f cnduct fr each benchmark clearly specifying cntributrs' respnsibilities with respect t the cntributin f input data and shall ensure that such cde f cnduct cmplies with this Regulatin. The administratr shall be satisfied that cntributrs adhere t the cde f cnduct n a cntinuus basis and at least annually and in case f changes t it. The Cde shuld als be read in cnjunctin with the gvernance and cntrl requirements fr supervised cntributrs in Article 16 f the BMR and its Annex 1 which sets ut specific prvisins fr interest rate benchmarks. These bligatins are directly applicable t the LIBOR panel banks since they are cntributrs f input data t LIBOR in the cntext f the BMR. The Cde may als assist users f the benchmark in deciding whether LIBOR is an apprpriate benchmark fr them t use in cntracts. 1.2 Backgrund ICE LIBOR ( LIBOR ) is the wrld's mst widely used benchmark fr shrt term bank brrwing rates. The benchmark indicates the interest rate that banks pay when they brrw n an unsecured basis. It is fundamental t the peratin f bth UK and internatinal financial markets, including markets in interest rate derivatives cntracts. IBA became the administratr f LIBOR in early LIBOR prvides the average rate at which a LIBOR panel bank culd btain unsecured funding fr a given perid in a given currency. LIBOR is classified as a Critical benchmark under Article 20 f the BMR. A benchmark is Critical if it is used as a reference fr Financial Instruments r Financial Cntracts r fr measuring the perfrmance f Investment Funds with a ttal value f at least: EUR 500 billin and the majrity f Cntributrs are lcated in ne EU Member State; r EUR 400 billin and des nt exceed EUR 500 billin, where the benchmark has n r very few apprpriate market-led substitutes, and has a significant impact in ne r mre EU Member State. ~ 4 ~

5 Article 18 f the BMR refers t the applicable requirements fr interest rate benchmarks, stating that: The specific requirements laid dwn in Annex I shall apply t the prvisin f, and cntributin t, interest rate benchmarks in additin t, r as a substitute fr, the requirements f Title II. In additin, Regulatin (EU) /.. specifies the elements that a benchmark administratr shuld include in a cde f cnduct, in rder t ensure bth cnsistent behaviur by cntributrs and input data f the quality, accuracy and quantity needed by the methdlgy used t determine the benchmark. 1.3 Issue 5 f the LIBOR Cde f Cnduct This Cde is structured t fllw the applicable requirements: Gvernance and cntrl requirements fr supervised cntributrs (Article 16 BMR) BMR Annex I requirements fr cntributr systems and cntrls (Annex I), and BMR cde f cnduct requirements (Regulatin (EU) /..). 1.4 FCA Handbk Cntributr Banks are als subject t the FCA Handbk, and shuld read this Cde in cnjunctin with any requirements in the FCA Handbk that apply t the benchmark cntributin activities ~ 5 ~

6 2. GLOSSARY Term/expressin BMR Cmpliance Functin Cntributr Bank EU Hme State Regulatr FCA ICE Benchmark Administratin (IBA) ICE LIBOR LIBOR LIBOR Oversight Cmmittee LIBOR Submissin / Submissin Reviewer Submissin Methdlgy Submitter Meaning The EU Benchmarks Regulatin: Regulatin (EU) 2016/1011 f 8 June 2016 n indices used as benchmarks in financial instruments and financial cntracts r t measure the perfrmance f investment funds A cntrl functin within a Cntributr Bank, which is independent f the business area in which the LIBOR Submissin prcess is based A bank prviding LIBOR Submissins t IBA The relevant Natinal Cmpetent Authrity f a Cntributr Bank which is a branch f an EU bank The Financial Cnduct Authrity, the Natinal Cmpetent Authrity fr the UK in respect f the BMR ICE Benchmark Administratin Limited, which is the administratr f ICE LIBOR and ther benchmarks and market cnsensus rates, and which is authrised and regulated by the FCA The wrld's mst widely used benchmark fr shrt term bank brrwing rates, prduced each Lndn business day by IBA ICE LIBOR A cmmittee f IBA, respnsible fr verseeing activities arund LIBOR in accrdance with its terms f reference The infrmatin prvided by a Cntributr Bank t IBA fr the purpses f determining LIBOR An individual within a Cntributr Bank wh reviews LIBOR Submissins, whether befre r after such LIBOR Submissins have been prvided t IBA The prcess by which each LIBOR bank determines its LIBOR Submissins An individual within a Cntributr Bank wh prepares LIBOR Submissins n behalf f the Cntributr Bank ~ 6 ~

7 3. OVERVIEW OF THE BMR 3.1 Purpse The BMR is designed t ensure the prper functining f the EU internal market and imprve the cnditins f its functining, in particular with regard t financial markets, and t ensure a high level f cnsumer and investr prtectin in relatin t benchmarks. Recital (30) f the BMR explains that: The integrity and accuracy f benchmarks depends n the integrity and accuracy f the input data prvided by cntributrs. It is essential that the bligatins f cntributrs in respect f such input data are clearly specified, that cmpliance with thse bligatins can be relied upn, and that the bligatins are cnsistent with the benchmark administratr's cntrls and methdlgy. It is therefre necessary that the benchmark administratr prduces a cde f cnduct t specify thse requirements and the cntributr's respnsibilities cncerning the prvisin f input data. The administratr shuld be satisfied that cntributrs adhere t the cde f cnduct. Where cntributrs are lcated in third cuntries, the administratr shuld be satisfied t the extent pssible. The BMR applies very widely and includes within its scpe all indices that are used in the EU as the basis fr financial instruments r certain financial cntracts, r that are referenced by an investment fund. 3.2 BMR classificatin The BMR categrises benchmarks as Critical, Significant r Nn-significant. The first criterin fr determining whether a benchmark is Critical is that it has a minimum value f 500 billin. A benchmark can be deemed critical if it has a lwer minimum value but has n r few market-led substitutes and its cessatin wuld have a significantly adverse impact in ne r mre EU Member States. A benchmark that is neither Critical nr Significant is Nnsignificant. There are als different types f benchmark: Regulated-data; Cmmdity; and Interest rate. Lwer requirements apply t Regulated-data benchmarks. 3.3 Designatin f LIBOR under the BMR Since LIBOR is a Critical benchmark with cntributrs, it has an EU cllege f regulatrs chaired by the FCA. The membership f the cllege includes ESMA, the EU cmpetent authrities supervising the cntributrs and any ther EU cmpetent authrities wh cnsider that the cessatin f LIBOR wuld have a significantly adverse impact in their Member State. ~ 7 ~

8 3.4 Cde f cnduct requirements Cmmissin Delegated Regulatin (EU) /.. specifies the elements that a benchmark administratr shuld include in a cde f cnduct, in rder t ensure bth cnsistent behaviur by Cntributrs and input data f the quality, accuracy and quantity needed by the methdlgy used t determine the benchmark. The elements are as fllws: Including a descriptin f the input data Specifying that a Cntributr Bank must be satisfied that the Submitter has the necessary skills, knwledge, training and experience fr the rle Requiring a Cntributr Bank t have plicies t ensure prvisin f all relevant input data Specifying systems and cntrls that a Cntributr Bank must have in place Maintaining recrd-keeping plicies Having internal prcedures fr the Cntributr Bank s staff t reprt suspicius input data Having in place plicies that deal with the exercise f discretin (see als sectin 3.5 belw), and Having systems and cntrls fr the management f cnflicts f interest. 3.5 Gvernance and cntrl requirements fr supervised cntributrs The BMR s Article 16 (Gvernance and cntrl requirements fr supervised cntributrs) sets ut the gvernance and cntrl requirements applicable t supervised cntributrs which are, in brad summary: Ensuring that the prvisin f input data is nt affected by any cnflict f interest Ensuring that, where any discretin r expert judgement is required, it is independently and hnestly exercised based n relevant infrmatin Having in place a cntrl framewrk and effective systems and cntrls t ensure: the integrity, accuracy and reliability f input data that input data is prvided in accrdance with the BMR and this Cde Having in place plicies guiding any use f judgement r exercise f discretin, and Retaining recrds f the ratinale fr any such use f judgement r discretin. ~ 8 ~

9 4. INPUT DATA REQUIREMENTS 4.1 Descriptin f Input Data The relevant BMR prvisins are as fllws: Regulatin EU /.. 1 Article 1 (Descriptin f input data) The cde f cnduct shall include a clear descriptin f at least the fllwing aspects related t the input data t be prvided by a cntributr: a) the types f input data; b) the required quality and accuracy f the input data; c) the required quantity f the input data; d) the pririty, if any, in which input data is t be cntributed; e) the frmat f the input data; f) the frequency f Submissin f input data; g) the timing f Submissin f input data; h) cntributr s prcedures, if any, fr adjustments t, and standardisatin f, the input data. 4.2 Types f input data A Cntributr Bank is required t frmulate its LIBOR Submissins in accrdance with the methdlgy requirements published by IBA at: ICE LIBOR Methdlgy 4.3 Quality and accuracy f input data A Cntributr Bank is required t implement and maintain apprpriate prcedures and cntrls designed t ensure the accuracy and integrity f the Cntributr Bank s Submissins. The BMR requires a pre-cntributin check t identify suspicius input data, including effective checking prcesses, in the frm f a review f the data by a secnd persn, fr unusual data values. 1 References t the Regulatin will be updated when the final versin is published. ~ 9 ~

10 A Cntributr Bank must carry ut a pst-submissin review and any errrs identified in it shuld be reprted t IBA in accrdance with the Errr Plicy as published frm time t time by IBA. A Cntributr Bank that makes frequent errneus Submissins will be reprted t the LIBOR Oversight Cmmittee and/r t the FCA at certain threshlds. Once a Submissin has been made, there shuld be a mechanism fr checking that the rates that were submitted t IBA were thse intended t be submitted; this is in rder t identify any IT-related r transcriptin errrs. 4.4 Quantity f input data A Cntributr Bank is required t have rganisatinal arrangements designed t ensure that all relevant data is taken int accunt in the frmulatin f its LIBOR Submissins and that any exclusin f data can be verified and justified. 4.5 Pririty f input data A Cntributr Bank is required t frmulate its LIBOR Submissins in accrdance with the requirements fr Submissin Methdlgy published by IBA. 4.6 Frmat f input data Submissins must be upladed t IBA s platfrm in such manner and frmat as may be specified by IBA frm time t time in rder t ensure the secure transfer f data. 4.7 Frmat, frequency and timing f Submissins LIBOR is published at Lndn time n Lndn business days. Market hlidays applicable t individual LIBOR currencies and tenrs are published n the Hliday Calendars n the IBA website at: Submissins must be made between and n each Lndn business day. Submissins received at r after will be regarded as late. If a bank makes frequent late Submissins, the matter will be reprted t the LIBOR Oversight Cmmittee and/r t the FCA at certain threshlds. A Cntributr Bank is expected t ensure that cnsistent and timely electrnic delivery f LIBOR Submissins is pssible withut material interruptin due t human r technical failure. In particular the bank shuld have: ~ 10 ~

11 Cntrls that will help prevent system and prcess failures, r identify them t rectify prblems prmptly Arrangements fr the cntinuity f Submissins in the event that a significant prcess r system becmes unavailable r is destryed, and Arrangements fr the recrding and capture f electrnic cmmunicatins frm any site used fr disaster recvery and/r business cntinuity purpses. 4.8 Adjustments t input data Where a Cntributr Bank finds it necessary t adjust r standardise any data in the frmulatin f the Cntributr Bank s LIBOR Submissins, any such adjustment r standardisatin must cmply with the input data requirements and all standards fr cmpliance, audit, gvernance, and management f cnflicts f interest that are set frth in this Cde f Cnduct. 4.9 Prvisin f all relevant input data The relevant BMR prvisins are as fllws: Regulatin EU /.. data) Article 3 (Plicies t ensure that a cntributr prvides all relevant input The cde f cnduct shall require that a cntributr has in place at least the fllwing plicies t ensure that a cntributr prvides all relevant input data: a) An input data plicy that includes at least a descriptin f: i) the data t be taken int accunt in determining the input data cntributin; and ii) the data that a cntributr may exclude frm a cntributin f input data and any reasn that might justify such an exclusin; b) a plicy n the transmissin f data t the administratr that includes at least: i) a methd t be used fr the secure transfer f data; and ii) cntingency plans fr submitting input data that address at least the fllwing elements: technical and peratinal difficulties, the temprary absence f a submitter, and a lack f input data required by the methdlgy. A LIBOR Cntributr Bank must have at least the fllwing dcumentatin: An input data plicy that includes at least a descriptin f the data t be prvided in accrdance with this Cde, including the exclusin f: data that des nt cnfrm t the Submissin Methdlgy ~ 11 ~

12 transactin(s) if there are reasnable grunds t suspect manipulatin - see sectin 4.11 f this Cde. A plicy r prcedure n the transmissin f data t IBA as prescribed by IBA, and Cntingency plans fr submitting input data that address at least the fllwing elements: technical and peratinal difficulties, and the temprary absence f a Submitter Use f discretin when cntributing input data The relevant BMR prvisins are as fllws: Regulatin EU /.. Article 5 (Plicies n the use f discretin when cntributing input data) Where the cde f cnduct allws the cntributr t use discretin in cntributing input data, it shall require the cntributr t establish plicies n the use f discretin that specify at least the fllwing: a) the circumstances in which the cntributr may exercise discretin; b) the persns within the cntributr that are permitted t exercise discretin; c) any internal cntrls that gvern the exercise f the cntributr s discretin in accrdance with its plicies; d) any persns within the cntributr that may evaluate ex-pst the exercise f discretin. BMR Article 16 (Gvernance and cntrl requirements fr supervised cntributrs) - paragraph 3 3. Where input data relies n expert judgement, supervised cntributrs shall establish, in additin t the systems and cntrls referred t in paragraph 2, plicies guiding any use f judgement r exercise f discretin and shall retain recrds f the ratinale fr any such judgement r discretin. Where prprtinate, supervised cntributrs shall take int accunt the nature f the benchmark and its input data. BMR Annex 1 (Interest Rate Benchmarks) - paragraph Input data and prcedures shall be subject t regular internal reviews. A Cntributr Bank must ensure that any exercise f discretin r expert judgement is: Apprpriately framed t ensure that it is based as far as pssible n data that is capable f verificatin Applied cnsistently in accrdance with the assciated methdlgy, and ~ 12 ~

13 Suitably recrded in a manner that can be made available n request by IBA r a relevant regulatr r auditr. A Cntributr Bank must have internal cntrls that gvern the exercise f the submitters discretin in accrdance with its plicies Reprting f suspicius input data The relevant BMR prvisins are as fllws: Regulatin EU /.. Article 7 (Reprting f suspicius input data) 1. The cde f cnduct shall require a cntributr t establish dcumented internal prcedures that prvide fr its staff t reprt any suspicius input data t the cntributr s cmpliance functin, if any, r t the cntributr s senir management. 2. The cde f cnduct shall specify the cnditins under which a cntributr shuld reprt suspicius input data t the administratr, and shall specify the methd in which the cntributr shuld cntact the administratr. Submitters and Reviewers and alternates are expected t reprt suspicius behaviur r events which they cme acrss in the curse f their wrk where, bjectively, reasnable grunds exist fr such knwledge r suspicin. A Cntributr Bank must have rbust rules and escalatin prcedures that require Submitters and Reviewers and alternates t reprt any such knwledge r suspicins t the Cntributr Bank's Cmpliance Functin and, as apprpriate, t the senir management respnsible fr the Cntributr Bank's LIBOR Submissin prcess. Any behaviur and/r events reprted t the Cmpliance Functin and/r t the senir management f the benchmark-setting prcess shuld be reviewed by them in a timely manner t determine whether there are reasnable grunds fr suspicin. It is likely that, where there are such grunds fr suspicin, a reprt shuld be made by the bank t the FCA r, as the case may be, the EU Hme State Regulatr. If there are reasnable grunds t suspect manipulatin in relatin t ne r mre transactins n which the Cntributr Bank s LIBOR Submissin wuld be based: The data crrespnding t such transactin(s) shuld be excluded frm the Cntributr Bank's determinatin f its LIBOR Submissins, and The Cntributr Bank shuld infrm IBA prmptly f the exclusin f data pertaining t such transactins frm the bank s calculatin f its LIBOR Submissin fr ne r mre currencies. A Cntributr Bank which suspects that any persn: Is manipulating r has manipulated Is attempting t, r has attempted t, manipulate, and/r ~ 13 ~

14 Is clluding in, r had clluded in, the manipulatin r attempted manipulatin f LIBOR, must ntify the FCA withut delay. If IBA receives a reprt frm a Cntributr Bank abut suspected manipulatin f the benchmark, IBA will frward any such reprt t the FCA. Nte: This sectin des nt interpret r in any way affect a Cntributr Bank s respnsibilities under FCA rules r applicable market abuse legislatin ~ 14 ~

15 5. GOVERNANCE 5.1 Systems and cntrls The relevant BMR prvisins are as fllws: Regulatin EU /.. Article 4 (Systems and cntrls) 1. The cde f cnduct shall specify that the effective systems and cntrls that a cntributr must have in place prvide fr at least the fllwing: a) pre-cntributin checks t identify suspicius input data, including effective checking prcesses in the frm f a review f the data by a secnd persn, and unusual data values; b) pst-cntributin checks t verify the input data has been cntributed in accrdance with the requirements f the cde f cnduct and t identify suspicius input data; and c) mnitring f the transfer f input data t the administratr in accrdance with the applicable plicies. 2. A cde f cnduct may allw the use f an autmated system fr the cntributin f input data, in which natural persns are nt able t mdify the cntributin f input data, n cnditin that the cntributr using an autmated system: (a) is able t mnitr the prper functining f the autmated system n a cntinuus basis; and (b) checks the autmated system fllwing any update r change t its sftware, befre new input data is cntributed. In such a case, a cde f cnduct may nt require the cntributr using an autmated system t establish the checks in pint (a) f paragraph The cde f cnduct shall define the prcedures that a cntributr must have in place t address any errrs in the cntributed input data. 4. The cde f cnduct shall require that a cntributr regularly reviews, at least annually, the systems and cntrls established in relatin t the cntributin f input data. BMR Article 16 (Gvernance and cntrl requirements fr supervised cntributrs) - paragraph 1 1.The fllwing gvernance and cntrl requirements shall apply t a supervised cntributr: (a) the supervised cntributr shall ensure that the prvisin f input data is nt affected by any existing r ptential cnflict f interest and that, where any discretin is required, it is independently and hnestly exercised based n relevant infrmatin in accrdance with the cde f cnduct referred t in Article 15; (b) the supervised cntributr shall have in place a cntrl framewrk that ensures the integrity, accuracy and reliability f input data and that input data is prvided in accrdance with this Regulatin and the cde f cnduct referred t in Article 15. BMR Annex 1 (Interest Rate Benchmarks) - paragraph 7 7. A cntributr's systems and cntrls shall include: ~ 15 ~

16 (a) (b) (c) (d) (e) (f) (g) (h) (i) an utline f respnsibilities within each firm, including internal reprting lines and accuntability, including the lcatin f submitters and managers and the names f relevant individuals and alternates; internal prcedures fr sign-ff f cntributins f input data; disciplinary prcedures in respect f attempts t manipulate, r any failure t reprt, actual r attempted manipulatin by parties external t the cntributin prcess; effective cnflicts f interest management prcedures and cmmunicatin cntrls, bth within cntributrs and between cntributrs and ther third parties, t avid any inapprpriate external influence ver thse respnsible fr submitting rates. Submitters shall wrk in lcatins physically separated frm interest rate derivatives traders; effective prcedures t prevent r cntrl the exchange f infrmatin between persns engaged in activities invlving a risk f cnflict f interest where the exchange f that infrmatin may affect the benchmark data cntributed; rules t avid cllusin amng cntributrs, and between cntributrs and the benchmark administratrs; measures t prevent, r limit, any persn frm exercising inapprpriate influence ver the way in which persns invlved in the prvisin f input data carries ut thse activities; the remval f any direct link between the remuneratin f emplyees invlved in the prvisin f input data and the remuneratin f, r revenues generated by, persns engaged in anther activity, where a cnflict f interest may arise in relatin t thse activities; cntrls t identify any reverse transactin subsequent t the prvisin f input data. 5.2 Required systems and cntrls Intrductin A Cntributr Bank must establish and maintain adequate and effective rganisatinal and gvernance arrangements fr the prcess f making benchmark Submissins. These arrangements shuld include written plicies and prcedures designed t ensure that this LIBOR Cde is implemented and systematically applied within the Cntributr Bank fr the integrity f its LIBOR Submissins. Gvernance arrangements shuld be within the cntext f a structure that reflects apprpriate senir management invlvement in, and awareness f, the LIBOR Submissin prcess. The verall apprach, plicies and prcedures shuld cver: Reprting structure and perating prcedures Oversight and mnitring arrangements ~ 16 ~

17 Escalatin and reprting prcedures, and Dcumenting business cntinuity arrangements fr making LIBOR Submissins A Cntributr Bank shuld charge a gvernance grup f its senir individuals with respnsibility fr versight f the Cntributr Bank's LIBOR Submissin prcess and fr receiving reprts n pst-submissin reviews f its integrity, accuracy and reliability. Regulatin EU /.. Article 4 (Systems and cntrls) prvisins In accrdance with Regulatin EU /.. Article 4 (Systems and cntrls), a Cntributr Bank's systems and cntrls must include: An utline f respnsibilities including: internal reprting lines and accuntability, the lcatin f Submitters and managers, and the names f all Submitters, Reviewers, managers and ther relevant individuals, and their designated alternates. As set ut in sectin f this Cde, each persn directly invlved in a bank s Submissin prcess shuld be frmally designated and dcumented as such within the Cntributr Bank (including the persn s name, rle and reprting line, as well as a detailed jb descriptin cvering the invlvement in the Submissin prcess) Prcedures fr sign-ff f cntributins f input data (See sectin 5.4 belw) Disciplinary prcedures in respect f attempts t manipulate, r any failure t reprt, actual r attempted manipulatin by parties external t the LIBOR Submissin prcess Effective prcedures fr management f cnflicts f interest and cntrl f cmmunicatins, bth within the Cntributr Bank and between the Cntributr Bank and third parties, t avid any inapprpriate influence ver thse respnsible fr LIBOR Submissins, including but nt limited t the physical separatin f wrk lcatins f Submitters and Reviewers and alternates frm the wrk lcatins f interest rate derivatives traders. (See Sectin 5.3 belw) Effective prcedures t prevent r cntrl the exchange f infrmatin between persns engaged in activities invlving a risk f cnflict f interest where the exchange f that infrmatin may affect the benchmark data cntributed (See Sectin 5.3 belw) Rules t avid cllusin in relatin t LIBOR Submissins. (See sectin 4.11 abve abut reprting suspicins f cllusin) Measures t prevent, r limit, any persn frm exercising inapprpriate influence ver the way in which persns invlved in the prvisin f input data carry ut thse activities. (See sectins 5.3 and 5.5 belw) N direct link between the remuneratin f emplyees invlved in the prvisin f input data and the remuneratin f, r revenues generated by, persns engaged in anther activity, where a cnflict f interest may arise in relatin t thse activities. (See sectin 5.3 belw) ~ 17 ~

18 Cntrls t identify any reverse transactin subsequent t the prvisin f input data. (See sectin 6.1 belw). A Cntributr Bank shuld have in place prcedures and cntrls t ensure the Cntributr Bank s cmpliance with the Errr Plicy as published frm time t time by IBA. BMR Article 16 (Gvernance and cntrl requirements fr supervised cntributrs) prvisins In accrdance with paragraph 1 f BMR Article 16 (Gvernance and cntrl requirements fr supervised cntributrs), the fllwing gvernance and cntrl requirements apply: A Cntributr Bank must ensure that the prvisin f input data is nt affected by any existing r ptential cnflict f interest and that, where any discretin is required, it is independently and hnestly exercised based n relevant infrmatin, and A Cntributr Bank must have in place a cntrl framewrk that ensures the integrity, accuracy and reliability f input data and ensures that input data is prvided in accrdance with the BMR and this Cde - see sectin 3.5 abve. A Cntributr Bank must review at least annually its systems and cntrls in relatin t the cntributin f input data. IBA will expect each Cntributr Bank t prvide an annual attestatin t IBA in respect f the bank s systems and cntrls in relatin t the LIBOR Submissin prcess, including the sufficiency f the bank s cybersecurity measures. All plicies shuld be reviewed at least annually, and updated as necessary, and must reflect changes in this LIBOR Cde in a timely manner. 5.3 Cnflicts f interest The relevant BMR prvisins are as fllws: Regulatin EU /.. Article 8 (Cnflicts f interest) 1. The cde f cnduct shall require a cntributr t establish systems and cntrls cncerning the management f cnflicts f interest that include at least: a) a cnflicts f interest plicy that addresses: i. the identificatin and internal escalatin f cnflicts f interest; ii. the recruitment prcess fr submitters; iii. remuneratin plicies f the cntributr s staff; iv. ptential cnflicts f interest arising frm the cntributr s management structure; ~ 18 ~

19 v. cmmunicatins between the submitters and ther staff within the cntributr; vi. any physical and peratinal separatin between submitters and ther staff f the cntributr; vii. the cntributr s expsure t a financial instrument which uses the benchmark t which the cntributr cntributes input data as a reference. b) a register f cnflicts f interest, that shall be kept up t date and used t recrd any cnflicts f interest identified and any measures taken t manage them. The register shall be accessible by internal r external auditrs. 2. The cde f cnduct shall require that the staff f a cntributr that are invlved in the cntributin prcess are trained in relatin t all plicies, prcedures and cntrls relating t the identificatin, preventin r management f cnflicts f interest. 3. A cde f cnduct applicable t a cntributr t a nn-significant benchmark may nt address the systems and cntrls cncerning the management f cnflicts f interest in pints (a)(iii), (v), (vi) and (vii) f paragraph 1. BMR Article 16 (Gvernance and cntrl requirements fr supervised cntributrs) - paragraph 2 2. A supervised cntributr shall have in place effective systems and cntrls t ensure the integrity and reliability f all cntributins f input data t the administratr, including: [ ] (c) measures fr the management f cnflicts f interest, including rganisatinal separatin f emplyees where apprpriate and cnsideratin f hw t remve incentives, created by remuneratin plices, t manipulate a benchmark; (d) recrd-keeping, fr an apprpriate perid f time, f cmmunicatins in relatin t prvisin f input data, f all infrmatin used t enable the cntributr t make each submissin, and f all existing r ptential cnflicts f interest including, but nt limited t, the cntributr's expsure t financial instruments which use a benchmark as a reference; [ ] A Cntributr Bank must maintain and perate effective rganisatinal and gvernance arrangements t enable it t identify and manage any cnflicts f interest that may arise frm the prcess f making LIBOR Submissins. These arrangements shuld include having in place ethics plicies and escalatin prcedures t address cnflicts f interest. ~ 19 ~

20 In rder t identify and manage cnflicts f interest, a Cntributr Bank shuld: Establish, implement and maintain a cnflicts f interest plicy which: identifies the circumstances that cnstitute r may give rise t a cnflict f interest arising frm its benchmark Submissins r the prcess f gathering infrmatin in rder t make benchmark Submissins sets ut the apprach t managing such cnflicts, and address the recruitment prcess fr submitters, and Establish effective cntrls t manage cnflicts f interest between the parts f the business respnsible fr the benchmark Submissins and thse parts f the business wh may use r have an interest in LIBOR Establish effective measures t prevent r limit any persn frm exercising inapprpriate influence ver the LIBOR Submissins, and Maintain a Cnflicts f Interest Register setting ut perceived cnflicts f interest and hw they are handled. All Submitters and Reviewers and alternates shuld be lcated within the functin respnsible fr the Cntributr Bank s liquidity and liability management r in an apprpriate cntrl functin (e.g. the risk functin). These individuals shuld nt have parallel respnsibility fr any derivatives trading, fr example, ther than that assciated with the Cntributr Bank s liquidity and liability management. Where cnflicts f interest in respect f LIBOR Submissins may ccur, such as where Submitters r Reviewers hld psitins in assets, liabilities r derivatives with market expsure t LIBOR, the Cntributr Bank shuld cnsider systematically identifying such psitins and assciated activities. Annex 1 f the BMR requires a Cntributr Bank t keep detailed recrds f sensitivity reprts fr interest rate swap trading bks and any ther derivative trading bk with a significant expsure t interest rate fixings in respect f input data. Article 16.2(d) requires the maintenance f recrds relating t the Cntributr Bank's expsure t financial instruments which use the benchmark as a reference. The internal cntrls and prcedures develped and implemented t mitigate actual r ptential cnflicts f interests shuld be dcumented and mnitred t demnstrate their effectiveness. Such internal cntrls and prcedures shuld include, but nt be limited t: Requiring Submitters and Reviewers and alternates: nt t disclse t any individual, inside r utside the Cntributr Bank (ther than t the cmpliance r ther apprpriate cntrl functins) rates which will be submitted in the future r have been submitted t IBA but nt yet published nt t disclse infrmatin influencing a Submitter s specific Submissin that is nt penly available t ther market participants, and ~ 20 ~

21 nt t be physically lcated in prximity t Cntributr Bank emplyees wh primarily trade r deal in derivatives prducts that reference the LIBOR rates t which the Cntributr Bank makes LIBOR Submissins, such that they can hear each ther. Requiring individuals nt invlved in the LIBOR-setting prcess: nt t cntact Submitters and Reviewers r alternates t attempt t influence, r inapprpriately infrm, the Cntributr Bank s Submissins fr any reasn, including fr the benefit f any derivatives trading psitins nt t cntact Submitters and Reviewers r alternates t seek infrmatin n the Cntributr Bank s Submissins, and nt t seek t misuse any infrmatin n the Cntributr Bank s Submissins. This des nt deny access t Submissins by a bank s Cmpliance Functin (r by named individuals designated as a part f the Submissin prcess) in rder t perfrm checks prir t publicatin f LIBOR. Cmmunicatin within the grup f Submitters and Reviewers and alternates respnsible fr Submissins need nt be restricted. Hwever, all cmmunicatin within that grup relating t Submissins which is nt face t face shuld be cnducted n the Cntributr Bank s recrded telephne and electrnic cmmunicatin systems and nt n persnal telephnes r ther persnal electrnic devices. Submitters and Reviewers and alternates respnsible fr Submissins shuld treat any nnpublic LIBOR-related infrmatin as sensitive and take apprpriate precautins t ensure the cnfidentiality f such infrmatin. A Cntributr Bank shuld maintain a whistleblwing plicy s that staff and external parties have a means by which t raise cncerns regarding unlawful r inapprpriate practices related t LIBOR, fr example cnfidentially t the Cmpliance Functin. Fr the avidance f dubt, nthing in this LIBOR Cde shall prevent the disclsure f rates which have been submitted t IBA t any external individual r internal individual wh is nt frmally designated as being invlved in the Submissin prcess s lng as they: (i) (ii) have a cmmercially reasnable business need t knw that can be demnstrated t IBA, r are a custmer f the Cntributr Bank entering int a transactin with it priced by reference t the submitted rate. In bth cases abve, apprpriate arrangements fr preserving cnfidentiality must be in place. IBA publishes individual bank Submissins, after three mnths embarg and n a nnattributed basis. Individual Submissins cntinue t be available t IBA, the FCA and, as apprpriate, the LIBOR Oversight Cmmittee. When the three mnths embarg has expired and IBA has published the unattributed Submissins, a Cntributr Bank may at its discretin disclse which Submissin were made by that bank. ~ 21 ~

22 Perfrmance assessment and remuneratin Adherence t this Cde shuld be an integral part f the perfrmance assessment f Submitters, Reviewers, alternates and thers within the LIBOR Submissin prcess. The remuneratin f Submitters and Reviewers and alternates shuld nt be based in whle r in part n any ecnmic target that culd incentivise Submitters directly r indirectly t mdify LIBOR Submissins. 5.4 Submissin sign-ff The relevant BMR prvisins are as fllws: BMR Article 16 (Gvernance and cntrl requirements fr supervised cntributrs) 2.A supervised cntributr shall have in place effective systems and cntrls t ensure the integrity and reliability f all cntributins f input data t the administratr, including: (a) cntrls regarding wh may submit input data t an administratr including, where prprtinate, a prcess fr sign-ff by a natural persn hlding a psitin senir t that f the submitter; (b) [ ] A Cntributr Bank must have effective systems and cntrls t ensure the integrity and reliability f all LIBOR Submissins t IBA, including, where apprpriate, sign-ff by an individual with mre senir rank than the Submitter Appintment f Submitters, training and cntrls The relevant BMR prvisins are as fllws: Regulatin EU /.. Article 2 (Submitters) 1. The cde f cnduct shall require that a persn can act as a submitter f input data n behalf f a cntributr nly when a cntributr is satisfied that the persn has the necessary skills, knwledge, training and experience fr the rle. 2. The cde f cnduct shall describe the due diligence prcess that a cntributr shall undertake befre being satisfied that a persn has the necessary skills, knwledge, training and experience t submit input data n its behalf. This prcess shall include undertaking checks t verify: a) the identity f the ptential submitter; b) the qualificatins f the ptential submitter; and c) the reputatin f the ptential submitter, including whether the ptential submitter has previusly been excluded by any party frm submitting input data t a benchmark fr reasns f ~ 22 ~

23 miscnduct. 3. The cde f cnduct shall state the methd by which a cntributr is t ntify the identity f any individual authrised t submit input data n its behalf t the administratr Appintment f Submitters A Cntributr Bank must undertake a due diligence prcess t determine that it is satisfied that a persn has the necessary skills, knwledge, training and experience t submit input data n its behalf. This prcess must include undertaking checks t verify: The identity f the ptential Submitter The qualificatins f the ptential Submitter; and The reputatin f the ptential Submitter, including whether the ptential Submitter has previusly been excluded by any party frm submitting input data t a benchmark fr reasns f miscnduct. A Cntributr Bank must infrm IBA by t IBA@theice.cm f the appintment f the Submitter n behalf f the bank. In additin, each persn directly invlved in the Submissin prcess shuld be frmally designated and dcumented as such within the Cntributr Bank. The designatin and dcumentatin shuld include the persn s name, rle and reprting line, as well as a descriptin f the persn's invlvement and respnsibilities in the Submissin prcess. A Cntributr Bank s LIBOR Submissin prcess shuld prvide fr alternates fr Submitters and Reviewers, whse appintment(s) and identities shuld be ntified t IBA in accrdance with sectin 5.2 abve Training fr Submitters and Reviewers and alternates All Submitters and Reviewers and their alternates shuld have relevant experience in the market fr the LIBOR benchmark fr which they are making Submissins, r in a cmparable market. The level f experience required t be demnstrated shuld be apprpriate t the respnsibilities f the functin perfrmed, in the cntext f the depth f the market cncerned. All Submitters and Reviewers and their alternates shuld receive training n respnsibilities, prcesses, systems and cntrls assciated with setting LIBOR. Training shuld include understanding, at a minimum: This LIBOR Cde f Cnduct The BMR The Market Abuse Regulatin (EC Regulatin 596/2014) Internal plicies and prcedures related t LIBOR setting ~ 23 ~

24 The use f expert judgment, apprpriately framed, within the Submissin prcess The imprpriety f attempting t influence the determinatin f Submissins, and the need t reprt any such attempts that they becme aware f The imprtance f cnducting all business related t LIBOR Submissins n recrded telephne and electrnic cmmunicatin systems and nt n persnal telephnes r ther persnal electrnic devices The emplyment and ther ptential cnsequences fr firms and emplyees if emplyees act unlawfully r imprperly in cnnectin with the bank s Submissins r the prcess fr determining Submissins, and That knwingly r deliberately making false r misleading statements in relatin t benchmark-setting is a criminal ffence under legislatin including the Financial Services Act 2012, fr which the sanctins include a prisn term f up t 7 years and/r a fine. Training shuld be prvided prmptly t new Submitters and Reviewers. Fr all Submitters and Reviewers and alternates, training shuld be refreshed at least annually and whenever there are material changes t the LIBOR Cde r applicable regulatry requirements. Cmpletin f training shuld be dcumented fr each individual Training fr emplyees wh trade r deal in prducts that reference LIBOR All Cntributr Bank emplyees wh primarily trade r deal in prducts that reference LIBOR shuld receive training, initially and then at least annually, t ensure familiarity with the respnsibilities, systems and cntrls assciated with being emplyed within a Cntributr Bank. The training shuld address as a minimum the fllwing tpics: The imprpriety f attempting t influence the determinatin f Submissins, and the need t reprt any such attempts that they becme aware f Plicies and prcedures related t cmmunicatin with Submitters and Reviewers and their alternates The requirement t cnduct business related t derivatives prducts that reference LIBOR n recrded telephne and electrnic cmmunicatins systems, and nt n persnal devices r systems The emplyment and ther ptential cnsequences fr firms and emplyees if emplyees act unlawfully r imprperly in cnnectin with the Cntributr Bank s Submissins r the prcess fr determining Submissins That intentinal nn-cmpliance with internal plicies and prcedures implementing the LIBOR Cde may be a disciplinary matter, and lead t staff being subject t disciplinary prcedures, which may include the applicatin f malus clauses ~ 24 ~

25 That any attempt t manipulate, r any failure t reprt, actual r attempted manipulatin by parties external t the cntributin prcess will render an individual liable t disciplinary prcedures, and That knwingly r deliberately making false r misleading statements in relatin t benchmark-setting is a criminal ffence under legislatin including the Financial Services Act f 2012, fr which the sanctins include a prisn term f up t 7 years and/r a fine. Cmpletin f training shuld be dcumented fr each individual ~ 25 ~

26 6. COMPLIANCE AND AUDIT 6.1 Annex I prvisins The relevant BMR prvisins are as fllws: BMR Annex 1 (Interest Rate Benchmarks) - paragraphs 10 and The cmpliance functin f the cntributr t an interest rate benchmark shall reprt any findings, including reverse transactins, t management n a regular basis. 12. An external audit f the input data f a cntributr t an interest rate benchmark, cmpliance with the cde f cnduct and the prvisins f this Regulatin shall be carried ut fr the first time six mnths after the intrductin f the cde f cnduct, and subsequently every tw years. 6.2 Cmpliance There shuld be apprpriate versight f the Submissin prcess by the Cmpliance Functin f the bank t ensure cmpliance with the cntributr s bligatins under the BMR. The Cmpliance Functin must reprt any findings, including reverse transactins, t management n a regular basis. The functin respnsible fr mnitring cmpliance f LIBOR-setting related activities with the LIBOR Cde and the Cntributr Bank s internal plicies and prcedures shuld be independent bth f the individuals respnsible fr LIBOR Submissins and f the businesses with incme statement sensitivity t LIBOR. The Cntributr Bank s Cmpliance Functin must be able t access dcumentatin cvering the LIBOR Submissin prcess. IBA expects that such dcumentatin wuld be made available, n request, t IBA and the FCA r, as the case may be, the EU Hme State Regulatr. In respect f the LIBOR Submissin prcess, the rle f the Cmpliance Functin shuld include: Incrprating apprpriate versight activity int the annual Cmpliance Functin plans Incrprating the versight activity int the Cntributr Bank s cmpliance plicies and prcedures and keeping this material up-t-date, and Prcedures fr reprting findings. Examples f the key duties f cmpliance r ther similar functin related t LIBOR: Advising the relevant persns respnsible fr carrying ut LIBOR-setting related activities in cmplying with the Cntributr Bank s bligatins under its internal plicies and this Cde Invlvement in gathering and investigating any cmplaints cncerning the accuracy r integrity f the Cntributr Bank s Submissin, including the lgging, review and fllw-up f all cmplaints ~ 26 ~

27 Regularly reviewing the Cntributr Bank s interactins with IBA, including the number and result f requests fr further infrmatin and the number f late Submissins Regularly reviewing reprts identifying exceptins and breaches f internal prcedures implementing this Cde Testing n a risk-based apprach a sample f recrds f vice cmmunicatins between thse invlved in the LIBOR Submissin prcess and thse utside f this prcess Issuing recmmendatins based n the result f wrk carried ut Verifying cmpliance with thse recmmendatins, and Recrding and escalating its findings. The Cmpliance Functin shuld maintain a physical presence, n at least a mnthly basis, n the flr f the LIBOR-setting team and the flr f traders in derivatives that reference LIBOR rates t which the Cntributr Bank makes Submissins. In rder t enable the Cmpliance Functin t discharge its respnsibilities prperly and independently: The functin shuld have the necessary authrity, resurces, expertise and access t all relevant infrmatin A cmpliance fficer (with alternate) shuld be designated as the pint f cntact fr all LIBOR-setting related activities within the bank The designated cmpliance fficer shuld nt be invlved in the Submissin prcess they mnitr, and The methd f determining the remuneratin f the cmpliance fficer must nt cmprmise their bjectivity. 6.3 Audits An external audit f the bank s LIBOR input data, cmpliance with this Cde cmpliance with the prvisins f the BMR is required as fllws: Fr the first time six mnths after the intrductin f this Cde, and Subsequently every 2 years. IBA als recmmends peridic internal audit reviews. Any significant issues which are identified shuld be reprted at an apprpriately senir level within the bank fr decisin n the actins t be taken and whether these issues shuld be reprted t IBA ~ 27 ~

28 7. RECORD-KEEPING The relevant BMR prvisins are as fllws: Regulatin EU /.. Article 6 (Recrd-keeping plicies) 1. The cde f cnduct shall require a cntributr t keep a recrd f all relevant infrmatin necessary t check the cntributr s adherence t the cde f cnduct, including a recrd f at least the fllwing infrmatin: a) plicies and prcedures gverning the cntributin f input data and any relevant changes therein; b) the register f cnflicts f interest established pursuant t pint (b) f Article (8)(1); c) any disciplinary actin taken against any f the cntributr s staff in respect f benchmark-related activities; d) a list f submitters and persns perfrming checks in respect f cntributins, including their names and rles within the cntributr, and the dates when the Submissin-related rles were authrised and exited; e) in respect f each cntributin f input data: i. the cntributin f input data; ii. the data taken int accunt in determining the input data cntributin, and any data that was excluded; iii. any use f discretin; iv. any input data checks undertaken by the cntributr; v. cmmunicatins in relatin t the cntributin f input data between the submitter and any persns within the cntributr perfrming checks in respect f cntributins. 2. The cde f cnduct shall require the recrd-keeping plicies t prvide that infrmatin be kept fr a minimum f five years, r three years where the recrds are f telephne cnversatin r electrnic cmmunicatins, n a medium that allws the strage f infrmatin t be accessible fr future reference. 3. A cde f cnduct applicable t a cntributr t a significant benchmark may nt address the recrdkeeping plicies in pint (e) (iv) f paragraph A cde f cnducts applicable t a cntributr t a nn-significant benchmark may nt address the recrd-keeping plicies in pint (e) (iv) and (v) f paragraph 1. BMR Article 16 (Gvernance and cntrl requirements fr supervised cntributrs) -- paragraphs A supervised cntributr shall have in place effective systems and cntrls t ensure the integrity and reliability f all cntributins f input data t the administratr, including: [ ] (d) recrd-keeping, fr an apprpriate perid f time, f cmmunicatins in relatin t prvisin f input data, f all infrmatin used t enable the cntributr t make each Submissin, and f all existing r ptential cnflicts f interest including, but nt limited t, the cntributr's expsure t financial instruments which use a benchmark as a reference; ~ 28 ~

29 (e) recrd-keeping f internal and external audits. 3. Where input data relies n expert judgement, supervised cntributrs shall establish, in additin t the systems and cntrls referred t in paragraph 2, plicies guiding any use f judgement r exercise f discretin and shall retain recrds f the ratinale fr any such judgement r discretin. Where prprtinate, supervised cntributrs shall take int accunt the nature f the benchmark and its input data. 4. A supervised cntributr shall fully cperate with the administratr and the relevant cmpetent authrity in the auditing and supervisin f the prvisin f a benchmark and make available the infrmatin and recrds kept in accrdance with paragraphs 2 and 3. BMR Annex 1 (Interest Rate Benchmarks) - paragraph 8 8. A cntributr t an interest rate benchmark shall keep detailed recrds f: (a) (b) (c) (d) (e) (f) (g) all relevant aspects f cntributins f input data; the prcess gverning input data determinatin and the sign-ff f input data; the names f submitters and their respnsibilities; any cmmunicatins between the submitters and ther persns, including internal and external traders and brkers, in relatin t the determinatin r cntributin f input data; any interactin f submitters with the administratr r any calculatin agent; any queries regarding the input data and their utcme f thse queries; sensitivity reprts fr interest rate swap trading bks and any ther derivative trading bk with a significant expsure t interest rate fixings in respect f input data. 9. Recrds shall be kept n a medium that allws the strage f infrmatin t be accessible fr future reference with a dcumented audit trail. A Cntributr Bank shuld ensure that apprpriate recrds are kept f its business and internal rganisatin, which must be available t IBA n request, t the extent permitted by applicable law, in rder t mnitr the bank s cmpliance with the requirements under this LIBOR Cde. A Cntributr Bank must prvide t IBA all infrmatin used by the bank t enable it t make a LIBOR Submissin, cmprising the type f Submissin fr each applicable tenr and an explanatin f the ratinale and methdlgy used t establish each Submissin. A Cntributr Bank shuld be able t prvide ther infrmatin used in the LIBOR Submissin prcess, n request, t IBA and/r the FCA r, as the case may be, the EU Hme State Regulatr. Other apprpriate recrds must at least include: Plicies and prcedures gverning the cntributin f input data and any relevant changes t thse plicies and prcedures The register f cnflicts f interest relating t the Cntributr Bank s LIBOR Submissins ~ 29 ~