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Benchmarks Regulation (BMR)

 

Benchmarks Regulation (EU) 2016/1011

Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (Benchmarks Regulation)

What does the Benchmarks Regulation govern?

The provisions of the Benchmarks Regulation cover natural and legal persons who provide benchmarks (administrators), contribute to their creation (contributors) or use such benchmarks (users). The Benchmarks Regulation therefore also covers supervised undertakings such as banks, investment firms, insurers, funds (UCITS, AIFs) and their managers, pension funds, creditors, market operators, central counterparties, trade repositories, or administrators.

2. Administrators:

The Benchmarks Regulation is the first regulation to define comprehensive requirements for administrators. Administrators must be licensed by the FMA and are supervised. They must have in place robust governance arrangements and take adequate steps to identify and to prevent or manage conflicts of interest between themselves and the contributors or users of the benchmarks. Administrators must establish an internal oversight function, maintain records of the data used and the methodology for establishing the benchmark, establish complaint management, comply with detailed requirements for the data used and the methodology, and publish the methodology used. For reasons of investor protection a benchmark declaration with detailed information has to be established for each benchmark. Supervisory requirements vary according to the nature of the benchmark (e.g. regulated-data benchmarks, interest rate benchmarks, commodity benchmarks, critical benchmarks, significant benchmarks, non-significant benchmarks and climate benchmarks). The Benchmarks Regulation also sets out rules governing the activities in the EEA of administrators with registered offices in third countries and for the use in the EEA of benchmarks provided in third countries, given that benchmarks in principle are of great importance in cross-border transactions.

3. Contributors:

Contributors are subject to a code of conduct. Contributors which are supervised undertakings must meet certain governance requirements and avoid conflicts of interest when providing input data for the creation of a benchmark.

4. Use of benchmarks:

Supervised undertakings such as banks, investment firms, insurers, funds (UCITS, AIFs) and their managers, pension funds, creditors, market operators, central counterparties, trade repositories, or administrators may use benchmarks only if they are provided by a registered administrator or are registered as third country benchmarks. Securities prospectuses and UCITS prospectuses or other client contracts must include clear and easily visible information if the prospectus or contract concerns a transferable security or other investment product for which a benchmark serves as a reference. In addition, supervised undertakings – other than administrators using benchmarks – must establish robust written plans outlining the measures to be taken if the benchmark is changed or no longer used. For this purpose, all contracts and prospectuses referring to a benchmark must be reviewed and amended as of entry into force of the Benchmarks Regulation.

5. Supervision:

On the basis of the Benchmarks Regulation, the FMA has been given a new function within the meaning of Article 5 FMAG (licensing of administrators, recognition of third country administrators, or approval of the adoption of benchmarks provided by third country administrators, implementation of Regulation and enforcement (EU) 2016/1011). As of 1 January 2022 ESMA is responsible for the recognition and supervision of certain critical benchmarks and third country benchmarks. As of 13 February 2021 the EU-Commission is empowered to designate a statutory replacement in certain cases of dessation of certain benchmarks.

6. Benchmark register:

The European Securities and Markets Authority (ESMA) maintains a public central register of all authorised or registered administrators as well as all recognised benchmarks provided in third countries (https://www.esma.europa.eu/databases-library/registers-and-data).

What are the objectives of the Benchmarks Regulation and who is covered?

The Benchmarks Regulation was adopted on 8 June 2016 by the legislative power of the European Union. It serves as a harmonised framework for the requirements governing the provision and use of benchmarks. Benchmarks are used for all types of financial contracts, e.g. as reference values to calculate interest rates for mortgage loans or to measure the performance of funds (investment indices as the basis for calculating performance fees). In addition to establishing an efficient supervisory regime, the Benchmarks Regulation aims in particular to ensure the accuracy and integrity of the benchmarks, thus avoiding scope for manipulation and conflicts of interest and ensuring the transparent determination of benchmarks. The Benchmarks Regulation thus serves to ensure the effective functioning of the internal market in a wide variety of financial instruments and financial services and to strengthen consumer and investor protection.

How does the Benchmarks Regulation apply in Liechtenstein?

The Benchmarks Regulation is directly applicable in Liechtenstein as soon as it or any amendment of this Regulation is incorporated into the EEA Agreement. This also applies to all implementing acts issued by the European Commission pursuant to the Benchmarks Regulation.

Supplementing the Benchmarks Regulation, the EEA Benchmarks Implementing Act (EWR-RWDG) will also apply in Liechtenstein. The EWR-RWDG is applicable since 18 December 2019.

The transitional period provided for in the Benchmarks Regulation expires on 31 December 2019, so that starting 1 January 2020, only benchmarks from licensed or registered administrators or recognised third country benchmarks may be used in the EU. The deadline for the usage of third country benchmarks however is extended until 31 December 2023.

Due to the cessation of the money market interest rate CHF LIBOR on 31 December 2021, the EU-Commission has designated certain rates of SARON (Swiss Average Rate Overnight) as the replacement rates for the CHF LIBOR in references to this in any contract and in any financial instrument as defined in Directive 2014/65/EU (MiFID) as of 1 January 2022.

EURIBOR is to be adapted to the requirements of Regulation (EU) 2016/1011, and EONIA is to be replaced by the risk-free reference rate EUrSTR (€STR; Euro short-term rate) as of 3 January 2022.

7. Authorization or registration?

A natural person or entity intending to be an administrator must apply for authorization. Assessing the importance of the benchmark ​​provided and secondly, whether the potential administrator is an already supervised entity, defines, if an administrator requires an authorization.

If the potential administrator is an already supervised entity that does not provide a critical benchmark, a registration is sufficient. Supervised contributors only have to comply with a code of conduct and specific requirements.

For further details, please do not hesitate to send an e-mail to wpm@fma-li.li.

What is the status of implementation?

The law implementing the Benchmarks Regulation (EU) 2016/1011 entered into force on 18 December 2019, as by then the Benchmarks Regulation (EU) 2016/1011 is applicable in Liechtenstein link.

Various Amendments to the Regulation (EU) 2016/1011 enter into force in Liechtenstein as soon as the Decision of the EEA-Joint Commission on the implementation of the respective Legal Act into the EEA-Agreement enters into force.