Threepager on the upcoming EU Benchmark Regulation. In this article, we review the main objectives, characteristics and impacts of the regulation as well as how Chappuis Halder can help the involved financial institutions.

1. Get ready for the EU Benchmarks Regulation (BR)
The BR, proposed in September 2013 by the European Commission, is now in its final stages. The final text of the regulation
is still awaiting formal adoption by the European Parliament and will be applied 18 months after this.
What is a “benchmark” and who is in scope of this regulation?
Benchmarks are used in financial markets as a reference to price financial instruments and to measure performance of
investment funds, as well as being an important element of many financial contracts. Their integrity is critical to financial
markets and to investors. The BR’s objective is to improve the governance and control over the benchmark process, thereby
ensuring their reliability and protecting users.
You may be in scope of this new Regulation if you:
1. Use a benchmark provided within the EU or within a third country
2. Provide a benchmark within the EU
3. Contribute input data to a benchmark provided in the EU
This will include global indices (EURIBOR, LIBOR, EONIA…) and also major European indices such as the FTSE100, DAX and
CAC40 and commodity benchmarks such as LBMA Gold Price, LBMA Silver Price or STOXX Europe 600 Food & Beverage.
Also, indices produced in non EU countries, but used in the EU, will need to meet the regulatory requirements.
This Regulation is expected to have a significant impact in the use of benchmarks and may require companies in scope to
sell or amend existing holdings & contracts.
EU Benchmarks Regulation
Timeline of the major international benchmarks initiatives over the last 4 years
The Financial Services
Authority (now-FCA)
released a report (the
Wheatley Review)
proposing a comprehensive
10-point reform plan on
benchmarks
The European Commission
issued a proposal on
indices used as benchmarks
(regulation, authorisation
and supervision)
The “Reforming Major
Interest Rate Benchmarks”
report of the Financial
Stability Board (FSB),
advises key benchmarks,
incl. EURIBOR, LIBOR and
TIBOR, to change their
rates to be better anchored
in transaction data
An agreement is reached
between the European
Parliament and the
European Council on a
regulation of financial
benchmarks
September 2012 September 2013 July 2014 November 2015
The International
Organisation of Securities
Commission (IOSCO)
published a final report on
principles for financial
benchmarks and has
conducted compliance
reviews with its principles
since then
The European Union
ratified a new law on
Market Abuse including
benchmark manipulation
into the scope of criminal
sanctions regimes
The European Council
backs the European
Commission proposal to
fight against the
manipulation of financial
benchmarks
The European Securities
and Markets Authority
(ESMA) is seeking input on
the technical
implementation of a
regulation to improve the
governance and control of
financial market
benchmarking
July 2013 April 2014 February 2015 February 2016
Multiple criminal
investigation revealed
significant fraud and
collusion by banks
connected to data
submissions, leading to the
LIBOR scandal
June 2012
The ESMA will use the
responses to the Discussion
Paper to develop detailed
implementing measures on
which it will publish a
follow-up consultation in
Q3 2016
Q3 2016
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2. 2/3
REMIT
…prohibits the deliberate provision of false
information to undertakings which provide price
assessments or market reports on wholesale
energy products with the effect of misleading
market participants.
IOSCO
…produced a set of principles on
the governance, the quality of
benchmark determinations, the
quality of the methodologies
used, and the accountability of
the benchmark administrator.
MAR
…clarifies that any manipulation of
benchmarks is clearly and
unequivocally illegal and subject to
administrative or criminal sanctions.
MIFID II
…specifies that the price, or other value
measure, of an underlying instrument
must be reliable and publicly available,
It also contains a provision requiring
the non-exclusive licencing of
benchmarks for clearing and trading
purposes.
UCITS
…ensures that only transparent
indices are permitted for UCITS
to use as a benchmark. These
transparency requirements are
extensive covering calculation,
re‐balancing methodologies, as
well as constituents and their
respective weightings. Indices
used as performance evaluation
tools also need to be disclosed in
advance in the UCITS KIID.
EU Benchmarks Regulation
Benchmarks are already controlled through several international regulations…
Benchmarks
REMIT
Regulation on
Energy Market
Integrity and
Transparency
IOSCO
International
Organisation of
Securities
Commissions
MAR
Market Abuse
Regulation
MIFID II
Markets in
Financial
Instruments
Directive
UCITS
Undertakings for
Collective
Investments in
Transferable
Securities
…but the new European regulation will strengthen three main pillars and widen the
scope of instruments and contracts
Controls
Objectives of the BR Implications for involved entities
Regulation
Sufficient transparency to enable users
to clearly understand and evaluate the
methodology used to compile the
benchmark.
Effective control and supervision of
personnel, appropriate reporting and
cooperation with the authorities;
monitoring and audits of submissions
processes; appropriate documentation
and record-keeping.
Additional regulatory oversight for
widely used benchmarks that are based
on subjective inputs and those not
adequately covered under existing
financial market regulations.
• Benchmark administrators will need to be authorised
or registered, and subject to supervision against the
requirements which cover governance, accountability,
design and methodology of any benchmarks provided.
They are also required to draw up a Code of Conduct
for each of their benchmarks.
• Benchmark contributors will need to meet additional
requirements to ensure the integrity of their current
submissions. Their governance, systems and controls
will be subject to supervision by national relevant
authorities.
• Benchmark users will no longer be allowed to use a
benchmark unless it is provided by an authorised or
registered administrator in the EU. For non EU
countries, the country administrator must be
recognised or the benchmark endorsed in the EU.
Transparency
1
2
3

3. 3/3
EU Benchmarks Regulation
What’s next and how we can help?
As numerous questions & concerns have been raised across the financial industry, the ESMA has published a Discussion
Paper (DP) in February 2016 regarding the technical implementation of the incoming Benchmarks Regulation. The DP is
seeking stakeholder’s feedback in the following areas:
…and penalties for non adherence are:
at least 3X the amount of
the profits gained or
losses avoided
€500k on an individual
and
€1M or 10% of total
annual turnover of a firm
or
Stéphane Eyraud,
Partner & CEO
Tel UK: + 44 78 34 55 03 98
Tel FR: + 33 6 12 41 64 06
seyraud@chappuishalder.com
Nicolas Heguy,
Manager
Tel UK: + 44 75 25 86 30 89
nheguy@chappuishalder.com
Our added
value
CH&Co has a dedicated team of experts in regulatory matters, focused on both the
interpretation of regulations (via market watch, benchmarks and lobbying within the
financial industry) and providing project management & experienced resources to
ensure adherence and achieve sustainable results.
How does the Benchmark Regulation affect you?
• definition of benchmarks
• requirements for the benchmark oversight function
• requirements for the benchmark input data
• transparency requirements regarding the methodology
• code of conduct for an administrator
• governance and control requirements for supervised
benchmark contributors
• criteria defining critical and significant benchmarks
• You are in scope of the BR if you are an EU Supervised Entity (which includes banks, insurance companies, fund
managers, UCITS, AIFMs, pension funds, investment companies).
• Supervised Entities will only be able to use benchmarks that are authorised by EU administrators or non EU
administrators, authorised by ESMA. This includes both the use of a benchmark to reference a financial contract or
instrument and to measure the performance of an investment.
• It will be required that Supervised Entities establish a Code of Conduct, which must include detailed contingency plans
in the case of a benchmark being withdrawn or amended. These plans will also need to be referenced in client
contracts.
• Non EU benchmarks will be required to obtain authorisation under the regulatory terms. This will involve considerable
challenges for some administrators of indices and may result in them not able to obtain the required permissions.
Accordingly, Supervised Entities will not be able use these indices for reference or measurement.