Brussels, 12 December 2024
EU Council background on on financial benchmarks deal
Today, the Council and the European Parliament reached a provisional agreement on a proposal to streamline benchmark authorisation and registration requirements, and to alleviate the burden on EU companies, particularly SMEs (smaller benchmark administrators and benchmark users). The provisional agreement needs to be confirmed by both institutions before being prepared for formal adoption.
Benchmarks are typically indexes or another basket of financial assets, they are widely used by companies and investors in the EU as a reference in their financial instruments or contracts.
As part of the provisional deal reached today, the Council and Parliament agreed with the Commission’s proposal to reduce the regulatory burden on administrators of benchmarks defined as non-significant in the EU, by removing them from the scope of current rules.
The Council and Parliament agreed that only those benchmarks defined as critical or significant, EU Paris-aligned benchmarks, EU Climate Transition benchmarks, and certain commodity benchmarks should remain under the scope of the regulation.
In addition, administrators outside the scope will have the possibility to request the voluntary application of the rules (opt-in), under certain conditions.
The Council and Parliament agreed to add further qualitative criteria to the calculation methodology for significant benchmarks, in addition to existing qualitative and quantitative criteria. Under the current rules, benchmarks are deemed significant if they are used as a reference for financial instruments, financial contracts or investment funds with a total average value of at least €50 billion, or fulfil certain other criteria. New criteria would be considered from now on.
The provisional agreement grants extended competence to ESMA (European Securities and Markets Authority). More specifically, ESMA will be in charge of supervising the endorsement of administrators, which would result in a single entry point for all third country benchmark administrators in the EU.
The Council and the Parliament agreed that supervised entities would only be allowed to use EU and third-country benchmarks that claim to take environmental sustainability and governance factors (ESG) into account in their methodology, if the administrator of the benchmarks discloses certain information.
The Council and Parliament decided to keep a specific exemption regime for spot foreign exchange benchmarks in the rules.
Next steps
The provisional agreement will now have to be confirmed by the Council and Parliament, before being formally adopted by both institutions. The text of the provisional agreement will be made available once confirmed. Once formally adopted, the final text will be published in the Official Journal of the EU, enter into force, and apply from 1 January 2026.
Background
The current regulation on indices used as financial benchmarks sets standards with the aim of preventing manipulation of benchmarks that could affect the price of financial instruments. The regulation sets requirements for administrators responsible for the provision of financial benchmarks.
The regulation also sets three separate regimes, with an increasing level of supervision and regulation depending on the benchmarks’ importance: non-significant benchmarks, significant benchmarks (which used as a reference for financial instruments, financial contracts or investment funds with a total average value of at least €50 billion, or fulfil certain other criteria) and critical benchmarks (at least €500 billion, or fulfil certain other criteria).
Also, under the current rules, EU market participants can only use benchmarks produced or administered in a non-EU country if the country concerned has a framework equivalent to that of the EU, if its benchmark is endorsed by an EU benchmark administrator, or if the benchmark is recognised in the EU.
The Commission submitted it proposal on benchmarks on 30 October 2023. It forms part of a package of measures to rationalise financial reporting requirements.
- Benchmarks: Council agrees its negotiating mandate (press release, 20 December 2023)
- What the EU is doing to deepen its capital markets (background information)
Source – EU Council
EU Parliament on the deal reached on new rules for benchmarks
Economic and Monetary Affairs committee negotiators struck a deal with the Council aimed at protecting financial stability, while reducing administrative and regulatory burden.
A benchmark is a statistical measure, calculated from a representative set of data, that is used as a reference price for a financial instrument, financial contract, or to measure a performance. Negotiating teams from the European Parliament, the Council and the Commission reached a provisional political agreement on the benchmark regulation review on Thursday afternoon.
As prices of financial instruments depend on benchmarks, negotiators agreed that the new rules should apply to critical benchmarks, significant benchmarks and certain commodity benchmarks, as well as climate-related benchmarks such as EU Climate Transition Benchmarks (EU CTB) and EU Paris-aligned Benchmarks (EU PAB), in order to assure adequate supervision. The spot foreign exchange benchmarks complying with certain criteria have been also kept in the scope. Negotiators confirmed the threshold of a total average value of at least 50 billion euro to define a significant benchmark, while introducing refinements to methodology to calculate the threshold.
Other benchmarks would be subject to a voluntary supervision regime, provided, that they reached the threshold of 20 billion euro. In order to promote the use of common standards for climate-related benchmarks such as EU CTB or EU PAB and to ensure their appropriate supply in the Union, benchmark administrators are encouraged to provide such benchmarks in the EU.
Regarding ESG-related benchmarks, the Commission should specify the information, as well as the standard format to be used for references to ESG factors to enable market participants to make well-informed choices and to ensure the technical feasibility of compliance.
The Parliament’s negotiating team also assured that ESMA would have a supervisory role over administrators endorsing benchmarks provided in a third country.
The lead MEP Jonás FERNÁNDEZ (S&D, ES), said: “This afternoon we reached a political agreement on the benchmark regulation review. This agreement represents a substantial improvement on the draft presented by the Commission, in particular as regards the scope of the regulation and the enhanced role of the European Securities and Markets Authority.
With this agreement, we are also moving forward with a framework that maintaining effective control and supervision mechanisms at the European level, favouring investment and growth of companies in the EU.”
Next steps
The deal needs to be formally adopted by Parliament and Council before it can come into force.
Further information
Source – EU Parliament