Used as a reference to price financial instruments and measure the performance of investment funds; benchmarks first popped up on the European Commission’s (EC) radar screen in September 2013, following the alleged manipulation of various benchmarks to the clear detriment of consumers and companies.
Benchmarks critical
In November 2015, the European Parliament and the Council of the EU agreed to establish the Benchmarks Regulation (BR).
Jonathan Hill, EU commissioner responsible for financial stability, financial services and capital markets union, at the time, said: “Benchmarks are critical for the functioning of our financial markets. Manipulating benchmarks amounts to stealing from investors and consumers and undermines confidence in markets.”
Reliability and protection
The purpose behind BR is to improve the governance and control over the benchmarking process, thereby ensuring reliability and greater user protection.
"Benchmarks are critical for the functioning of our financial markets."
ESMA is seeking input to inform its future proposals on draft Regulatory Technical Standards (RTS) and Technical Advice (TA) to the European Commission.
The changes outlined in ESMA’s discussion paper aim to:
- improve the quality of the input data and methodologies used by benchmark administrators;
- ensure that benchmark contributors provide adequate data and are subject to proper controls; and
- ensure the supervision and viability of critical benchmarks.
Accuracy, robustness, integrity
Steven Maijoor, ESMA chair, said: “The Benchmark Regulation, once implemented, will ensure the accuracy, robustness and integrity of benchmarks and the benchmark setting process by clarifying the behaviours and standards expected of administrators and contributors.
“These requirements will ensure that benchmarks are produced in a transparent and reliable manner and so contribute to well-functioning and stable markets, and investor protection.
“ESMA, in preparing for its work on regulatory technical standards and technical advice, is keen to ensure that all affected stakeholders have their views heard on this important topic and we hope that all interested parties will take this opportunity to contribute,” Maijoor said.
Next steps
The exact date when the Benchmarks Regulation will enter into force is still unknown, as it has not yet been published in the Official Journal of the EU.
ESMA will hold an open hearing on the discussion paper on 29 February 2016 in Paris. It will use the responses to develop detailed implementing measures. A follow-up consultation paper will be published in Q3 2016.
