Published: 29th June 2017

Of Relevance to:
Benchmark administrators, firms contributing input data to benchmarks and users of benchmarks


Both MiFID II and the Packaged Retail and Insurance-based Investments Products Regulation (“PRIIPs”) means that next January will be a busy time for many firms as they get to grips with new regulatory regimes.

One further piece of European legislation which will also apply from next January (1st) that hasn’t received as much publicity is the Benchmarks Regulation (2016/1011) (“BMR”).

The Regulation will apply not only to the provision of benchmarks, and the contribution of input data to a benchmark, but will also apply to those that use a benchmark.

For the purposes of the Regulation a ‘benchmark’ is defined as:

“any index by reference to which the amount payable under a financial instrument or a financial contract, or the value of a financial instrument, is determined, or an index that is used to measure the performance of an investment fund with the purpose of tracking the return of such index or of defining the asset allocation of a portfolio or of computing the performance fees”

Currently the FCA supervises eight specified benchmarks, including LIBOR (The London Interbank Offered Rate) and SONIA (Sterling Overnight Index Average). The BMR will apply much more widely, including all indices that are used in the EU as the basis for financial instruments or that are referenced by an investment fund.

The FCA has now published “Handbook changes to reflect the application of the EU Benchmarks Regulation” (CP17/17). However the title of the Consultation Paper doesn’t paint the full picture because whilst parts of the BMR directly apply to e.g. firms that use benchmarks in financial instruments or in relation to investment funds, the Handbook changes brought about by the BMR do not.

Article 29 of the BMR concerns the use of a benchmark – a term which is defined in Article 3(1)(7) and includes, but is not limited to “measuring the performance of an investment fund through an index or a combination of indices for the purpose of tracking the return of such index or combination of indices, of defining the asset allocation of a portfolio, or computing the performance fees”.

A ‘supervised entity’ e.g. a MiFID investment firm or an AIFM (please see Article 3(1)(17) for the full definition) may use a benchmark if the benchmark administrator is located in the Union and is included in a register that will be maintained by ESMA. A benchmark provided by an administrator located in a third country will have to meet the equivalence requirements in Article 30 in order for it to be used in the Union.

At the present time there are only draft technical standards available – which CP17/17, in part, is based upon – so it is possible that the FCA may need to adopt some final tweaks.

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