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Document 32016R1011

Ensuring accuracy and integrity of benchmarks

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Date of last review:: 19/04/2023
Initial creation date:: 12/01/2017

Summary code:

09.04.06.00 Financial services
14.09.04.02 Investment funds

EUROVOC descriptor:

Directory code:

06.20.20.00 Right of establishment and freedom to provide services / Sectoral application / Service activities

Summarised document(s):

32016R1011

Author:: Publications Office of the European Union
Responsible entity(ies):: Directorate-General for Financial Stability, Financial Services and Capital Markets Union

Ensuring accuracy and integrity of benchmarks

SUMMARY OF:

Regulation (EU) 2016/1011 on indices used as financial benchmarks

WHAT IS THE AIM OF THE REGULATION?

It sets common European Union (EU) standards to prevent manipulation of benchmarks* that could affect the price of financial instruments, or financial contracts such as loans or mortgages.

KEY POINTS

Administrators* responsible for the provision of financial benchmarks must:
- apply robust governance arrangements and clear organisational structures;
- identify, prevent or manage any potential conflicts of interest;
- ensure their staff have the necessary skills, knowledge and experience, and are effectively managed and supervised;
- maintain permanent and effective oversight of all aspects of the benchmarks under their responsibility;
- operate controls to ensure benchmarks comply with the legislation;
- have a system in place to record input data, phone or electronic communications and complaints received and investigated;
- subject any outsourcing to strict conditions;
- publish clear guidelines for different types of input data and the methodology used for calculating benchmarks;
- develop a code of conduct stipulating the responsibilities of contributors providing input data to the administrator;
- have sound administrative and accounting procedures, internal control mechanisms, effective procedures for risk assessment, and effective control and safeguard arrangements for managing ICT systems in accordance with amending Regulation (EU) 2022/2554 (see summary).
The regulation establishes three separate regimes, progressively increasing the level of regulation and supervision depending on a benchmark’s importance:
- non-significant benchmarks do not fall into either of the two categories below and are subject to less onerous rules;
- significant benchmarks 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;
- critical benchmarks are used as a reference for financial instruments, financial contracts or investment funds with a total value of at least €500 billion, or fulfil certain other criteria.
Specific arrangements exist for commodity benchmarks*, interest rate benchmarks and regulated data benchmarks*.
Two types of EU climate benchmarks that are underpinned by a methodology linked to the commitments laid down in the Paris agreement were introduced into the regulation by amending Regulation (EU) 2019/2089.
The regulation also lays down environmental, social and governance (ESG) disclosure requirements for all benchmarks, with the exception of interest rate and foreign exchange benchmarks.
The European Securities and Markets Authority (ESMA) establishes and maintains a public register of all authorised or registered administrators.
Various schemes exist to provide access to the EU market for financial benchmarks and administrators from outside the EU.
EU Member States’ competent authorities have the power to apply appropriate administrative sanctions and other measures for an infringement.
The European Commission had to report on the system’s operation to the European Parliament and the Council of the European Union by 1 January 2020.
The Commission is able to designate a statutory replacement benchmark where a critical benchmark or a non-EU country benchmark that is of particular relevance in the EU ceases to be provided (under amending Regulation (EU) 2021/168). This sought to reduce legal uncertainty regarding existing contracts and to avoid risks to financial stability, and was prompted by the fact that, from January 2022, the London interbank offered rate (LIBOR) interest rate benchmark ceased to be published.

Delegated acts

Delegated acts adopted by the Commission include:

Delegated Regulation (EU) 2018/1637 with regard to technical standards in relation to the oversight function;
Delegated Regulation (EU) 2018/1642 with regard to technical standards specifying further the criteria to be taken into account by competent authorities when assessing whether administrators of significant benchmarks should apply certain requirements;
Delegated Regulation (EU) 2020/1816 as regards the explanation in the benchmark statement of how environmental, social and governance factors are reflected in each benchmark provided and published;
Delegated Regulation (EU) 2020/1817 as regards the minimum content of the explanation on how environmental, social and governance factors are reflected in the benchmark methodology;
Delegated Regulation (EU) 2020/1818 as regards minimum standards for EU climate transition benchmarks and EU Paris-aligned benchmarks;
Delegated Regulation (EU) 2021/1348 with regard to technical standards specifying the criteria under which competent authorities may require changes to the compliance statement of non-significant benchmarks;
Delegated Regulation (EU) 2021/1349 with regard to technical standards specifying the criteria for the competent authorities’ compliance assessment regarding the mandatory administration of a critical benchmark;
Delegated Regulation (EU) 2021/1350 with regard to technical standards specifying the requirements to ensure that an administrator’s governance arrangements are sufficiently robust;
Delegated Regulation (EU) 2021/1351 with regard to technical standards specifying the characteristics of the systems and controls for the identification and reporting of any conduct that may involve manipulation or attempted manipulation of a benchmark; and
Delegated Regulation (EU) 2021/1352 with regard to technical standards specifying the conditions to ensure that the methodology for determining a benchmark complies with the quality requirements.
Delegated Regulation (EU) 2022/804 specifying rules of procedure for measures applicable to the supervision by the European Securities Markets Authority of certain benchmark administrators.
Delegated Regulation (EU) 2022/805 specifying fees applicable to the supervision by the European Securities Markets Authority of certain benchmark administrators.

FROM WHEN DOES THE REGULATION APPLY?

Regulation (EU) 2016/1011 has applied since 1 January 2018, except for certain articles which have already applied since 30 June 2016. These articles largely involve preparatory work, such as the development by ESMA of regulatory technical standards, but also the identification and supervision of critical benchmarks. The regime applicable to the use of non-EU benchmarks in the EU will start to apply as of 31 December 2023.
Regulation (EU) 2021/168 has applied since 13 February 2021.

BACKGROUND

Benchmarks are used to price financial instruments and financial contracts or to measure the performance of investment funds. A well-known example of a benchmark is the euro interbank offered rate (Euribor), used for interbank interest rates. Benchmarks are also used for oil price assessments, stock market indexes and the level of personal mortgage payments.
For more information, see:
- Financial benchmarks – Commission welcomes agreement on new rules to prevent manipulation (European Commission)
- EU labels for benchmarks (climate, ESG) and benchmarks’ ESG disclosures (European Commission).

KEY TERMS

Benchmark. A figure which is made public and used to price payments under financial instruments or financial contracts, or to measure the performance of an investment fund.

Administrator. An individual or company/organisation that has control over a benchmark.

Commodity benchmark. A benchmark that measures the price of a commodity.

Regulated data benchmark. Benchmarks determined from input data that is provided by regulated venues, energy exchanges and emission allowance auctions.

MAIN DOCUMENT

Regulation (EU) 2016/1011 of the European Parliament and of the Council of 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds and amending Directives 2008/48/EC and 2014/17/EU and Regulation (EU) No 596/2014 (OJ L 171, 29.6.2016, pp. 1–65).

Successive amendments to Regulation (EU) 2016/1011 have been incorporated into the original text. This consolidated version is of documentary value only.

Title and reference

Ensuring accuracy and integrity of benchmarks

SUMMARY OF:

WHAT IS THE AIM OF THE REGULATION?

KEY POINTS

FROM WHEN DOES THE REGULATION APPLY?

BACKGROUND

KEY TERMS

MAIN DOCUMENT

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