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Practice paper

Singapore Sling: How coercion may cure the hangover in financial benchmark governance

Justin O'Brien
Journal of Risk Management in Financial Institutions, 7 (2), 174-191 (2014)
https://doi.org/10.69554/XCJY6435

Abstract

The International Organization of Securities Commissions (IOSCO) has formalised a set of principles designed to restore confidence in a range of systemically important financial benchmarks. The alacrity with which IOSCO has moved and its endorsement by the Group of 20 Finance Ministers and Central Bank Governors (G20) is notable. It is far from clear, however, whether the principles provide a basis for sustainable reform. This derives from diametrically conflicting views within IOSCO as to whether benchmarks based on hypothetical submissions can be reformed or must be replaced by systems anchored in observed transactions. As a consequence the principles paper over rather than resolve core ethical deficiencies exposed in a still metastasising scandal. The paper examines how and why the IOSCO process has privileged symbolism over substance. It then evaluates an alternative approach. The Monetary Authority of Singapore (MAS) has developed an innovative solution whereby contributing banks to the Singapore Interbank Offered Rate (Sibor) are mandated to privilege the integrity of the benchmark over individual institutional reputational or litigation risk. This regulatory re-engineering of risk management integrates rules, principles and social norms to forge restraint. The paper concludes that this holistic approach, once calibrated to the political, economic and cultural dimensions of specific markets, is more likely to embed ethical decision-making, reduce the risk of institutional corruption and achieve socially beneficial outcomes.

Keywords: London Interbank Offered Rate (Libor); International Organization of Securities Commissions; financial benchmark governance; financial crisis

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Author's Biography

Justin O'Brien is an Australian Research Council Future Fellow, Professor of Law and Director of the Centre for Law, Markets and Regulation, UNSW Law, The University of New South Wales. He is also a Visiting Lab Fellow at the Edmond J Safra Centre for Ethics, Harvard University. A specialist in the dynamics of financial regulation he has written extensively on the interaction between governance of capital markets and ethical considerations. He is the author of a trilogy of books on financial crises and their aftermath – Wall Street on Trial (2003), Redesigning Financial Regulation (2007) and Engineering a Financial Bloodbath (2009) – as well as editor of a series of collections, most recently Integrity, Risk and Accountability in Capital Markets: Regulating Culture (2013).

Citation

O'Brien, Justin (2014, March 1). Singapore Sling: How coercion may cure the hangover in financial benchmark governance. In the Journal of Risk Management in Financial Institutions, Volume 7, Issue 2. https://doi.org/10.69554/XCJY6435.

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cover image, Journal of Risk Management in Financial Institutions
Journal of Risk Management in Financial Institutions
Volume 7 / Issue 2
© Henry Stewart
Publications LLP

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