Why are you proposing this initiative today? How does it contribute to the 2024 Commission work programme?
Benchmarks are widely used by financial sector companies and investors in the EU as reference in their financial instruments or contracts.
Under the current EU framework, EU market participants can only use benchmarks produced or administered in a third country if the third country concerned has a framework equivalent to that of the EU, or if the third-country benchmark is endorsed by an EU benchmark administrator or if the benchmark is recognised in the EU. An assessment carried out by the Commission this summer shows that no third-country jurisdictions which have regulated benchmarks have opted for a scope as broad as the Benchmark Regulation (BMR). As a result, the BMR would have significantly restricted the number and variety of non-EU benchmarks available for use in the EU. For that reason, the EU has repeatedly postponed the entry into application of the rules concerning third-country benchmarks and it has recently adopted a delegated act to postpone the entry into application of the third-country chapter of the BMR until 1 January 2025. That same assessment also shows that BMR imposes more regulatory burden on EU administrators of smaller benchmarks than other jurisdictions, which often focus on selected systemic benchmarks. To find a sustainable solution to this matter, today’s proposal introduces a new, simplified approach to EU and third-country benchmarks.
To tackle these issues, the Commission thus proposed today to review the Benchmark Regulation (Regulation (EU) 2016/1011) to reduce the administrative and regulatory burden imposed both on EU benchmark users and on EU benchmark administrators.
First, the proposal reduces the scope of the third-country rules to those benchmarks that are significant for the Union’s markets and removes for users of benchmarks in the Union the risk of not being able to reference certain benchmarks. EU benchmark users will therefore continue to have access to a wide array of third-country benchmarks.
Second, in order to ensure a level-playing field between third-country and EU benchmarks, the review will also limit the scope of EU legislation to EU benchmarks which are significant. The measures will also ensure that only EU administrators of benchmarks that are significant as well as EU climate benchmarks, remain within the scope of the Benchmark Regulation. This will significantly reduce the regulatory burden on EU administrators of benchmarks which are not deemed to be significant..
Why was it needed to revise the third country regime of BMR?
The BMR was set up in the aftermath of the 2012 LIBOR scandal (manipulation of the London Interbank Offered Rate) by bankers and other financial institutions , and as the result of international efforts coordinated by the International Organisation of Securities Commissions (IOSCO) to regulate financial benchmarks. The BMR, unlike the approach chosen in other jurisdictions, has adopted an all-encompassing approach whereby all benchmarks used in the EU, regardless of their size and relevance to the EU markets, should be regulated.
As is the case for EU benchmarks, the use of any third-country benchmark in the Union is regulated in the BMR. The current third country regime of the BMR is due to apply as of 31 December 2025. This date therefore represents a potential cliff edge for EU market participants, who might lose access to a significant number of benchmarks they need in their daily operations, because they are referenced in the financial instruments they manufacture or in the financial contracts they enter into.
This review therefore aims to avoid the risks entailed by such a situation by ensuring the continued access to those benchmarks, while maintaining a sufficient level of investor protection.
What are the key elements of the package?
First of all, today’s proposal streamlines reporting and overall regulatory burden as part of today’s package. For example, it is proposed to remove the obligation for EU benchmark users to individually verify the regulatory status of indices they wish to use as benchmarks by consulting websites and public registers. Under the proposal, it should suffice to consult the Art. 36 register (ESMA publishes a register of administrators and a register of third country benchmarks, in accordance with Article 36 of the Benchmarks Regulation. ESMA started publishing this list of Administrators and third country benchmarks on 3 January 2018) to verify that a benchmark is not subject to a public notice prohibiting its use.
Secondly, the proposal recalibrates the scope of the BMR and its rules for the use of non-EU benchmarks. While the substantive rules remain the same, they will apply to smaller number of market participants. This proposal will reduce the burden associated with the registration and related supervision of administrators of non-significant benchmarks. These administrators represent the vast majority (around 90%) of the total number of administrators, but the use of their benchmarks in the EU is less economically significant.
For EU supervised entities, such as banks, asset managers and insurance companies using benchmarks, the proposal removes the use restrictions contained in the third-country chapter of the current BMR, that were identified as a barrier to the use of many non-EU benchmarks.
What advantages will the proposal bring? Who benefits from this revision?
This revision will benefit a wide range of stakeholders
- First of all, the reduction in scope of the BMR, including its third-country chapter, will benefit users by ensuring their continued access to the widest range possible of benchmarks in order to continue to offer products that match their client’s needs while maintaining a sufficient level of investor and consumer protection. In addition, EU benchmark users will no longer have to individually check the regulatory status of indices they wish to use by consulting websites and public registers
- The proposal will also benefit EU administrators, by alleviating the significant burden that was imposed on them in light of the goal initially pursued by the BMR. Administrators of benchmarks that are not significant for Union markets will no longer need to apply the current BMR requirements
Under the current proposal, it will suffice to consult the ESMA register to check that a benchmark is not subject to a public notice prohibiting its use. To enable full transparency and increase legal certainty, all relevant decisions by supervisory authorities have to be made public and recorded in the ESMA register, as well as be published according to the European Single Access Point Regulation.
How is the proposal contributing to the level playing field?
This proposal ensures that the requirements imposed on EU administrators match those imposed on third-country administrators. In this way, it should ensure equal treatment and avoid any competitive disadvantage for EU administrators.
This is why the scope of the BMR for EU administrators has been modified to reflect the changes made to the BMR’s third-country chapter, and will now only cover critical benchmarks, significant benchmarks, EU Climate Transition Benchmarks and EU Paris-Aligned Benchmarks.
What is a significant benchmark under the review?
Significant benchmarks already exist under the BMR today: they are in first instance those benchmarks that are referenced by financial instruments and financial contracts with a total value above EUR 50 billion. As this is a strictly quantitative criterion, benchmark administrators will be required to monitor benchmark usage and self-report when they reach the threshold. Secondly, to take into account market specificities, national supervisors (for EU benchmarks) and ESMA (for non-EU benchmarks) will be able to designate additional benchmarks that do not reach the quantitative threshold as significant but whose discontinuation could have a significant adverse impact on financial stability, market integrity or consumers.
Supervisory roles do not change: EU benchmark administrators will remain under national supervision and third-country benchmark administrators will either be supervised by national supervisors or by ESMA.
What happens to EU-non-significant benchmarks that already have been authorised, registered, recognised or endorsed?
The proposal stipulates a simplified procedure by the national competent authorities or ESMA for those benchmark administrators who were authorised, recognised, registered or endorsed before the entry into application of the new framework.
Will there be other revisions of the BMR in the future?
The date of entry into application of the BMR’s third-country chapter has already been postponed twice. Today’s proposal aims to bring a long-term solution to the issues identified by stakeholders and benchmark users under the current regime.
What previous steps were taken before today’s proposal?
A targeted public consultation was carried out in mid-2022 to cover the specific issue of the BMR’s third-country chapter, and to assess the magnitude of the potential cliff edge effect that the entry into effect of the BMR third-country chapter would represent.
The Commission had also conducted, back in 2020, a consultation on a broader review of the BMR. The Commission has also in recent months consulted Member States, Members of the European Parliament and stakeholders before preparing the proposal.
The Commission has also published a report on the functioning of the third-country chapter on 14 July 2023.
What are the next steps?
It is now for the European Parliament and the Council to negotiate today’s proposal. The Commission has proposed that the new rules shall apply directly in the Member States as of 1 January 2026.
Related links
Text of the proposal
Markets integrity: Benchmarks and market abuse
