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

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.