EU Commission launches review of Benchmark Regulation


EU Commission launches review of Benchmark Regulation

17 October 2019

Regulatory News Alert

Context and objectives

Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (the EU Benchmark Regulation or BMR), has been in process since 1 January 2018.

Pursuant to Article 54 of the BMR, the European Commission has now launched a consultation on the BMR to gather feedback from affected parties for its review report to be submitted to the European Parliament and Council by 1 January 2020.

The review focuses in particular on the following:

  1. The functioning and effectiveness of the rules applicable to critical benchmarks, the mandatory administration and mandatory contribution rules, and the definition of a critical benchmark
  2. The effectiveness of the authorization, registration and supervision regime applicable to benchmark administrators, the benchmark colleges as well as the appropriateness of supervision of certain benchmarks by a Union body 
  3. The scope of application of the BMR. 


Critical benchmarks

According to the BMR, a ‘critical benchmark’ is a benchmark—other than a regulated-data benchmark—whose output value determines the value of a financial instrument or a financial contract, or measures the performance of an investment fund. Once the European Commission adds a benchmark to the list of critical benchmarks, the competent authority has increased powers to ensure the representativeness and continuity of the critical benchmark.

The European Commission now seeks feedback on:

  • The IBOR reform, or more specifically, whether competent authorities’ powers to require a change of methodology in a critical benchmark should be reinforced and, if so, in what way 
  • The orderly cessation of a critical benchmark, precisely regarding the rules for cessation plans and contingency planning
  • The appropriateness of the system of supervision by colleges. 


Authorization and registration

Under the BMR, competent authorities have the power to suspend or withdraw a benchmark administrator’s authorization or registration in order to prevent the use of its benchmarks. Yet, the European Commission expresses the concern that the current provisions may not be clear enough and could result in preventing the use of all the administrator’s benchmarks, despite only one of those being considered potentially inadequate.

Furthermore, the European Commission asks for feedback on the legacy provisions for non-compliant benchmarks.


Scope of the BMR

In its current version, the BMR is applicable to all types of benchmarks regardless of their underlying markets.

Consequently, as soon as an index is used in a way that responds to the definition of 'use of a benchmark', it becomes a benchmark and is therefore within the scope of the BMR.

The Commission is now seeking feedback from stakeholders on how to deal with:

  • Benchmarks that are not significant in terms of their use in the Union 
  • Certain types of benchmarks that are less prone to manipulation (e.g. regulated-data benchmarks).


Next steps

The consultation is open until 6 December 2019. Based on the responses received, the European Commission will prepare its report to the European Parliament and Council.

In addition, the Commission will also be required to submit a report on the operation of third-country benchmarks in the EU, including on the recourse that third-country benchmark administrators have had no endorsement, recognition, or equivalence. This report will also analyze the consequences of the extension of the transitional period for critical and third-country benchmarks until 31 December 2021 and is to be submitted by 1 April 2020.


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