EUROPEAN UNION: ESMA publishes Discussion Paper on Benchmarks Regulation

Thursday February 18 2016

The European Securities and Markets Authority (ESMA) has published a Discussion Paper concerning the technical implementation of the incoming Benchmarks Regulation. ESMA is seeking stakeholder’s input to inform its future proposals on draft Regulatory Technical Standards and Technical Advice to the European Commission.

The Discussion Paper may be specifically of interest to administrators of benchmarks and to any investor dealing with financial instruments and financial contracts whose value is determined by a benchmark or with investment funds whose performances are measured by means of a benchmark.

The objective of the Benchmark Regulation is to improve the governance and control over the benchmark process, thereby ensuring their reliability and protecting users.

The changes 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 robust supervision and viability of critical benchmarks.

ESMA proposes that attention should be devoted to mapping the publication channels and modalities of making available to the public of existing benchmarks, in order to determine the characteristics that could be taken into consideration when establishing whether an index is to be considered as made available to the public.

The Discussion Paper also provides more detail regarding the provision of an oversight function for benchmarks. Benchmark administrators are required under Article 5a of the original European Commission proposals [2013/0314] to establish a permanent and effective oversight function for all aspects of the provision of its benchmarks.

The main purpose of the oversight function is to ensure there is an effective challenge to the Board or equivalent management of the benchmark administrator. In determining the appropriate composition and positioning of an oversight function, it is necessary to consider which structure would be best placed to offer this challenge, free of unmanageable conflicts of interest.

This requirement forms part of a broader set of governance arrangements necessary for administrators to control conflicts of interest and to safeguard confidence in the integrity of benchmarks.

The Discussion Paper lays out proposals in other areas such as:

• appropriateness and verifiability of input data;
• transparency of methodology;
• governance and control;
• a code of conduct; and
• the distinction between significant and critical benchmarks.

The closing date for receipt of responses to the Discussion Paper is 31^st March 2016.

Click on the above link for further details