The Australian Financial Markets Association would have no difficulty operating under the principles outlined in a consultation paper on financial benchmarks issued by the International Organisation of Securities Commissions earlier this month.AFMA's executive director, David Lynch, said he was confident his organisation had the procedures, governance structure and oversight in place to meet any changes to standards under IOSCO's proposals.IOSCO has reviewed the principles for financial benchmarks in the wake of the Libor rigging scandal. AFMA sets Australia's bank bill swap rates, which would be covered by any changes IOSCO might make.Earlier this month, IOSCO issued a consultation paper. The authors of the paper, IOSCO's Task Force on Financial Benchmarks, found that certain benchmarks were "fragile". The taskforce said: "The process of data submission may create vulnerabilities, where the submitters are market participants with stakes in the level of the benchmark. Conflicts of interest can create incentives for abusive conduct."It found that inadequate detail on methodology undermined the ability of stakeholders to accept the credibility of the benchmark.The consultation paper calls for standards to apply to methodologies for calculating benchmarks; for credible governance structures to address conflicts of interest in the benchmark setting process; and for an appropriate level of transparency in the process.It also calls for the adoption of clearly defined written arrangements setting out the roles and obligations of all parties, with any outsourcing being subject to oversight.Benchmark administrators should have procedures for managing conflicts and there should be a separate committee to oversee the administrators. These administrators should also publish methodologies for review by stakeholders.The data used to construct a benchmark should be based on prices, rates, indices or values that have been formed by competitive forces and be anchored by observable transactions.Lynch said that since AFMA made a decision earlier this year to move from setting BBSW rates by submission, to a process of extracting rates from markets, it no longer had to deal with the conflicts that arise when submitters are market participants.He said AFMA had a high standard of oversight in place, with the Reserve Bank having an observer on its BBSW committee, as well as a market governance committee made up of industry representatives.In a submission to IOSCO, AFMA will call for clarification of what it believes is a very broad definition of a financial benchmark, which includes "rates indices or values used for measuring the performance of a financial instrument."Lynch said: "Investment banks produce rates that help investors with end-of-day portfolio valuations. They are not benchmarks, but they could be caught up in such a wide definition."The burden of being regulated might cause the banks to stop producing this data."AFMA will also seek clarification on the proposed requirement that data used to construct a benchmark should be based on "observable transactions".One reading of the proposal suggests that bids and offers, which AFMA currently uses, could not be used in the construction of benchmarks."The language on data sufficiency is imprecise and we will be asking for clarification," Lynch said.