Regulation (EU) 2016/1011 on indices used as benchmarks (Benchmark Regulation - BMR), which entered into force on 1 January 2018, aims to strengthen the confidence of market operators and, more generally, of the public in indices used as benchmarks in financial instruments and financial contracts in the Union, in line with the FSB recommendations of July 2014.
Main features
The Regulation introduces an EU-wide scheme designed to ensure the integrity and accuracy of financial benchmarks, both endangered in recent years by some cases of manipulation. In particular, the Regulation:
- introduces an authorization and supervision regime for benchmark administrators, setting out organizational, operational and governance requirements;
- defines specific governance and control requirements for supervised entities providing input data (contributors) for the calculation of benchmarks in contracts, financial instruments and investment funds;
- provides for measures to strengthen the integrity, objectivity and accuracy of benchmarks, as well as specific transparency requirements;
- requires supervised entities in the Union to use only indices whose administrators have been authorized (benchmarks from third countries can only be used in the EU following an equivalence, recognition or endorsement procedure);
- for indices defined as 'critical' (such as EURIBOR) it sets out more prescriptive measures, such as the possibility for the competent authorities to oblige contributors of input data to stay on the panel (mandatory contribution).
Review
In July 2020, the European Commission published a proposal to amend the Benchmark Regulation in order to include, among other things, some provisions aimed at managing an orderly wind-down of a benchmark widely used in the Union, the cessation of which might result in negative consequences that disrupt the functioning of financial markets.
The amendment empowers the European Commission to designate a replacement for a benchmark that is phased out (statutory replacement rate) which can be substituted by law in the absence of alternative contractual solutions (fallback provisions, namely provisions that permit the identification of a replacement rate in the event that the previous benchmark materially changes or ceases to be provided). In so doing, the European Commission will take into account the recommendations made by dedicated working groups on replacement rates promoted by the central banks of different currency areas.
Regulation (EU) 2021/168 amending Regulation EU 2016/1011 was published on 12 February 2021.
