New European legislation will regulate the provision of, contribution to and use of a wider set of benchmarks.
The Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment (EU Benchmarks Regulation) has been published in the Official Journal of the EU and will be fully applicable across the EU from 1 January 2018 (18 months after publication). It aims to introduce a common framework and consistent approach to the provision and the use of benchmarks.
What is considered a benchmark
When an index is used as a reference to determine the amount payable under a financial instrument traded on a trading venue or under mortgage or consumer credit contracts it becomes a benchmark for the purposes of the EU Benchmarks Regulation. Further to this, indices used to measure the performance of investment funds, either to track the return of the fund or to define its asset allocation, are also seen as being benchmarks.
The EU Benchmarks Regulation defines an index as a figure which is publicly available and is regularly determined, either by applying a formula to or making an assessment of a representative set of underlying data.
Benchmarks represent a wide range of underlying asset classes including equity, fixed income, commodity, FX, as well as alternative, non-financial interests. LIBOR, SONIA, FTSE100 and ICE Brent Index are just a few examples of a large number of benchmarks provided and used in the financial markets.
You and your firm may be affected by the EU Benchmarks Regulation if you:
- provide a benchmark within the EU
- contribute input data to a benchmark provided in the EU
- use a benchmark provided in the EU or in a third country
We look forward to engaging with you on this issue, as the FCA will be undertaking work around the application of the Regulation in the UK. If you are interested in our work in this area you can subscribe for EU Benchmark Regulation email updates.