The Benchmarks Regulation (BMR) aims to ensure benchmarks are robust and reliable, and to minimise conflicts of interest in benchmark-setting processes.
The onshored BMR came into effect at 11pm on the 31 December 2020. It regulates the provision of, contribution to, and use of, a wide set of benchmarks.
Benchmarks and indices defined
The BMR defines an index as a figure that is publicly available and is regularly determined, either by applying a formula or other calculation, or by making an assessment based on the value of one or more underlying assets/prices (including estimated prices, actual or estimated interest rates, quotes and committed quotes, or other values or surveys).
An index becomes a benchmark within the scope of the BMR where:
- it is used to determine the amount payable under a financial instrument or financial contract, or the value of a financial instrument
- it is used to measure the performance of an investment fund for the purpose of:
- tracking the return
- defining the asset allocation or a portfolio, or
- computing the performance fees
How this affects you
You may be a benchmark administrator if you provide indices that are used in:
- financial instruments traded on trading venues or via systematic internalisers in the UK
- mortgage or consumer credit contracts, or
- investment funds
You may be a supervised contributor under the regulation if you are an authorised person and you:
- contribute input data that is not readily available to the administrator, and
- provide the input data for a benchmark determination
You may be a benchmark user and be subject to additional requirements if you are supervised under certain onshored EU regulations as specified in Article 3(1)(17) and you:
- issue a financial instrument that references an index
- determine the amount payable under a financial instrument or a mortgage or consumer credit contract by referencing an index
- are a party to a mortgage or consumer credit contract that references an index
- provide a borrowing rate calculated as a spread or mark-up over an index or a combination of indices and that is solely used as a reference in a consumer credit contract to which the creditor is a party
- measure the performance of an investment fund through an index either to track the return of the fund or to define its asset allocation
Different types of benchmarks
The BMR groups benchmarks into 6 different types:
- Critical benchmarks – in summary, where the value of contracts underlying the benchmark is at least €500bn, or where it fulfills all the following criteria:
- the value of contracts underlying the benchmark is at least €400bn;
- the benchmark has no, or very few, appropriate market-led substitutes;
- in the event the benchmark ceases to be provided, or becomes unrepresentative of the underlying market, there would be significant and adverse impacts on market integrity, financial stability, consumers, the real economy or the financing of households and businesses in the UK.
- Significant benchmarks – where the value of contracts underlying the benchmark is at least €50bn, or where there are no or very few market-led substitutes and there would be an impact on financial stability if the benchmark ceased to be produced.
- Commodity benchmarks – where the underlying asset of the benchmark is a commodity as defined by MIFID II. Commodity benchmarks are subject to the requirements set out in Annex II of the regulation, unless they are regulated data benchmarks, or are based on submissions the majority of which are supervised entities. The articles relating to significant and non-significant benchmarks do not apply to commodity benchmarks.
- Regulated data benchmarks – where the input data to the benchmark is provided directly from regulated venues. Certain provisions of the regulation do not apply to regulated data benchmarks, and they cannot be classified as critical.
- Interest rate benchmarks – where the benchmark is determined based on the rate at which banks may lend to, or borrow from, other banks or agents in the money markets. Interest rate benchmarks are subject to the requirements set out in Annex I of the regulation. The articles relating to significant and non-significant benchmarks do not apply to interest rate benchmarks.
- Non-significant benchmarks – where the value of contracts underlying the benchmark is less than €50bn, and the benchmark is not a commodity or interest rate benchmark.
If you are a UK entity looking to carry out benchmark administrator activity in the UK, you will need apply for authorisation or registration, and be approved by us. Approved administrators will be added to the UK Benchmarks Register.
Third country benchmark administrators will need to be approved through the recognition or endorsement regimes, where a BMR equivalence decision does not apply to them, before the end of 2025.
It’s important that administrators, users and contributors fully understand and comply with their obligations under the regulation.
If you are not sure whether you fall within the scope of the regulation, you can contact us at [email protected]