Following a number of cases of benchmark manipulations across the globe, governments and regulatory bodies have put their focus on how benchmarks are set and administered. At European Union level, this has led to the adoption of Regulation (EU) 2016/1011 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds. With the text of the so-called Benchmark Regulation (BMR) having been published in the European Official Journal on 29 June 2016, it entered into application on 1 January 2018, effectively replacing any corresponding benchmark regulatory regime previously in place in various Member States.
The BMR introduces for the first time in the EU a regime for benchmark administrators that will ensure the accuracy and integrity of benchmarks. Its overall objective is to help restore confidence in the integrity of benchmarks by enhancing the robustness and reliability of benchmarks, thereby facilitating the prevention and detection of their manipulation. It further clarifies responsibility for benchmarks as well as their supervision by the relevant authorities.
What is a benchmark?
|Benchmark||Any index by reference to which the amount payable under a financial instrument or financial contract, or the value of a financial instrument is determined or an index that is used to measure the performance of an investment fund with the purpose of (i) tracking the return of such index, or (ii) defining the asset allocation of a portfolio, or (iii) computing the performance fees.|
|Index||Any figure (i) that is published or made available to the public, (ii) that is regularly determined, entirely or partially, by the application of a formula or any other method of calculation, or by an assessment, and (iii) on the basis of the value of one or more underlying assets or prices, including estimated prices, actual or estimated interest rates, quotes and committed quotes or other values or survey.|
|Financial instrument||Any of the instruments listed in Section C of Annex I of MiFID II and for which a request for admission trading on a trading venue (as defined in MiFID II) has been made, or which are traded on a trading venue or via a systematic internaliser (as defined in MiFID II)|
|Financial contract||Any credit agreement covered by the Consumer Credit Directive or the Mortgage Credit Directive (as implemented in Luxembourg)|
|Investment fund||Any UCITS or AIF|
In practice, the BMR regulates the administration of, contribution to, and use of a broad range of indices. For such purpose, it introduces, inter alia, a code of conduct for contributors of input data for benchmarks administrators requiring the use of robust methodologies along with sufficient and reliable data. The BMR also requires administrators (i.e. providers) of benchmarks to apply for authorisation / registration with the competent authority of the country in which they are located. Being henceforth subject to supervision of their national competent authority, administrators will face suspension of their status, if they do not comply with the provisions of the BMR.
In Luxembourg, the parliament has published on 4 August 2017 the draft law N°7164 executing the BMR in Luxembourg law. The draft designates the Luxembourg financial sector supervisory authority, Commission de Surveillance du Secteur Financier (CSSF), as the national competent authority to authorise benchmark administrators and ensure that the different stakeholders respect the requirements set by the BMR. The Luxembourg insurance sector supervisory authority, Commissariat aux Assurances (CAA), has the same functions with respect to stakeholders under its supervision. The draft further modifies the Luxembourg Consumer Code by requiring institutions selling loan arrangements and mortgages to provide a separate information sheet to the consumer with specific information on any indices or benchmarks used.
By Gilles Walers, Legal Adviser, ABBL