EUROPEAN UNION: EFAMA Response to ESMA Discussion Paper on Benchmark Regulation

Monday April 4 2016

The European Fund and Asset Management Association (EFAMA) has provided comments on the ESMA Discussion Paper on Benchmark Regulation.

EFAMA deals individually with the questions raised by ESMA and highlights that, in the case of UCITS, asset managers are already subject to extensive requirements and conditions under which UCITS may use financial indices as benchmarks.

Asset managers represent an important group of benchmark users, either in the case of passive managed funds and exchange traded funds (ETFs) – where benchmarks are used as a target for index linked funds – or in the case of the evaluation of an active manager’s performance – where the fund performance is measured against a selected index or a set of indices.

The ESMA Guidelines on ETFs and other UCITS issues (ESMA/2014/937/EN) foresee that only transparent indices are permitted for UCITS to use as a benchmark. These transparency requirements are very extensive covering calculation, re-balancing methodologies, as well as constituents and their respective weightings. In addition, indices used as performance evaluation tools need to be disclosed in advance in the UCITS KIID. This complements existing industry practice around robust index selection necessary to perform to the highest fiduciary standards.

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