# EUR-Lex - 52013PC0641 - EN

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# 52013PC0641

**Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on indices used as benchmarks in financial instruments and financial contracts /* COM/2013/0641 final - 2013/0314 (COD) */**

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EXPLANATORY MEMORANDUM

1.           CONTEXT OF THE PROPOSAL

1.1.        General context, grounds
for and objectives of the proposal

An index is a measure, typically of a price
or quantity, determined from time to time from a representative set of
underlying data. When an index is used as a reference price for a financial
instrument or contract it becomes a benchmark. A wide variety of benchmarks are
currently produced using different methodologies by different providers,
ranging from public entities to independent dedicated benchmark providers.

The settlements reached by several
competent authorities with a number of banks concerning the manipulation of the
LIBOR and EURIBOR interest rate benchmarks have highlighted the importance of
benchmarks and their vulnerabilities. Allegations of attempted manipulation of
commodity price assessments provided by commodity price reporting agencies
(PRAs) are also under investigation by the competent authorities and IOSCO has
carried out a review of oil price assessments by PRAs. The integrity of
benchmarks is critical to the pricing of many financial instruments, such as
interest rate swaps, and commercial and non-commercial contracts, such as
mortgages. If a benchmark is manipulated this will cause significant losses to
some of the investors that own financial instruments whose value is determined
by reference to the benchmark. By sending out deceptive signals about the state
of an underlying market it may distort the real economy. More generally
concerns about the risk of benchmark manipulation undermine market confidence. Benchmarks
are susceptible to manipulation where conflicts of interest and discretion
exists in the benchmark process and these are not subject to adequate
governance and controls.

The first part of the Commission’s response
to the alleged manipulation of LIBOR and EURIBOR was to amend the existing
proposals for a market abuse Regulation (MAR) and criminal sanctions for market
abuse Directive (CSMAD) to clarify that any manipulation of benchmarks is
clearly and unequivocally illegal and subject to administrative or criminal
sanctions.

However, changing the sanctioning regime
alone will not improve the way in which benchmarks are produced and used;
sanctioning does not remove the risks of manipulation arising from the inadequate
governance of the benchmark process where conflicts of interest and discretion
exist. Secondly, in order to protect investors and consumers, it is necessary
that benchmarks are robust, reliable and fit for purpose. In the light of these
considerations, this proposal for a regulation has four main objectives that
aim to improve the framework under which benchmarks are provided, contributed
to and used:

– 
to improve the governance and controls over the
benchmark process and in particular ensure that administrators avoid conflicts
of interest, or at least manage them adequately;

– 
to improve the quality of the input data and methodologies
used by benchmark administrators and in particular ensure that sufficient and
accurate data is used in the determination of benchmarks;

– 
to ensure that contributors to benchmarks are
subject to adequate controls, in particular to avoid conflicts of interest and
that their contributions to benchmarks are subject to adequate controls. Where
necessary the relevant competent authority should have the power to mandate
contributors to continue to contribute to benchmarks; and

– 
to ensure adequate protection for consumers and
investors using benchmarks by enhancing transparency, ensuring adequate rights
of redress and ensuring suitability is assessed where necessary.

1.2.        Existing provisions in the
area of the proposal

Union law currently addresses certain aspects
of the use of benchmarks:

– 
The proposals for a Market Abuse Regulation
(MAR)[1]
in Articles 2(3)(d) and 8(1)(d) and for a Criminal Sanctions for Market Abuse Directive
(CSMAD)[2]
(MAR has been the subject of a political agreement by the European Parliament
and the Council in June 2013) clarify that any manipulation of benchmarks is
clearly and unequivocally illegal and subject to administrative or criminal
sanctions.

– 
The Regulation on Energy Market Integrity and
Transparency (REMIT)[3]
provides that the manipulation of benchmarks that are used for wholesale energy
products is illegal.

– 
The Markets in Financial Instruments Directive[4] requires that any financial
instruments admitted to trading in a regulated market are capable of being
traded in a fair, orderly and efficient manner. The Implementing Regulation[5] of that Directive further
specifies that the price or other value measure of the underlying must be reliable
and publicly available.

– 
Article 30 of the European Commission Proposal on
the Markets in Financial Instruments Regulation (MiFIR)[6] (which is currently being
negotiated by the European Parliament and the Council) contains a provision
requiring the non-exclusive licencing of benchmarks for clearing and trading
purposes.

– 
The Prospectus Directive and Implementing
Regulation[7]
provide that where a prospectus contains a reference to an index, the issuer
should set out the type of the underlying and details of where information on
the underlying can be obtained, an indication of where information about the
past and the further performance of the underlying and its volatility can be
obtained, and the name of the index. If the index in question is composed by
the issuer, the issuer also needs to include a description of the index. If the
index is not composed by the issuer, the issuer needs to clarify where
information about the index can be obtained, and where the underlying is an interest
rate the issuer needs to provide a description of the interest rate.

– 
The Undertakings for Collective Investment in
Transferable Securities Directive[8]
provides that UCITS funds may only hold a maximum share of instruments issued
by the same body in their portfolio. Member States may raise the limits that
apply to how much of its total portfolio a UCITS may hold to a maximum of 20%
for investment in shares or debt securities issued by the same body when it
concerns an index which the UCITS wants to replicate, provided the composition
of the index is sufficiently diversified, the index represents an adequate
benchmark for the market to which it refers and it is published in an
appropriate manner.

2.           RESULTS OF CONSULTATIONS
WITH INTERESTED PARTIES AND IMPACT ASSESSMENTS

2.1.        Consultations

A three month public consultation was
launched on 3 September and closed on 29 November 2012. 84 contributions were
received from contributors, benchmark providers and users including exchanges,
banks, investors, consumer groups, trade bodies and public bodies. Stakeholders
acknowledged the weaknesses in the production and use of benchmarks, and
broadly supported action at EU level. Respondents also emphasised the need for
international coordination, and careful calibration of the scope of any
initiative.

ESMA and the EBA jointly investigated
shortcomings in the provision of EURIBOR by the EBF-EURIBOR and on 11 January
2013 launched a consultation on the Principles for Benchmarks-Setting Processes
in the EU[9].
In a letter dated 7 March 2013 the EBA, ESMA and EIOPA provided advice on the
content of this proposed legislation in light of this work. The Commission
services participated in an ESMA-EBA open hearing on 13 February 2013[10] on these Principles for
Benchmarks-Setting Processes. The Commission services also participated in the
public hearing on tackling the culture of market manipulation - global action
post LIBOR/EURIBOR held by the European Parliament on 29 September 2012.

2.2.        Impact Assessment

In line with its "Better
Regulation" policy, the Commission conducted an impact assessment of
policy alternatives. The policy options encompassed options to limit incentives
for manipulation, minimise discretion and ensure benchmarks are based on
sufficient, reliable and representative data, ensure internal governance and
controls address risks, ensure effective supervision of benchmarks and enhance
transparency and investor protection. Each policy option was assessed against
the following criteria: impact on stakeholders, effectiveness and efficiency.

The following fundamental rights of the
Charter of Fundamental Rights are of particular relevance: respect for private
and family life, protection of personal data, freedom of expression and
information.

Limitations on these rights and freedoms
are allowed under Article 52 of the Charter. The objectives as defined above
are consistent with the EU's obligations to respect fundamental rights.
However, any limitation on the exercise of these rights and freedoms must be
provided for by law and respect the essence of these rights and freedoms.
Subject to the principle of proportionality, limitations may be made only if
they are necessary and genuinely meet the objectives of general interest
recognised by the Union or the need to protect the rights and freedoms of
others. In the case of benchmarks, the general interest objective which
justifies certain limitations of fundamental rights is the objective of
ensuring market integrity. The need to protect the right to property (Article 17
of the Charter) also justifies certain limitations of fundamental rights, as
investors are entitled to see the value of their property (e.g. loans,
derivatives) protected from losses caused by market distortions.

The right to freedom of expression and
information requires that the freedom of the media shall be respected. This
Regulation should be interpreted and applied in accordance with this
fundamental right. Therefore where a person merely publishes or refers to a
benchmark as part of his or her journalistic activities but does not have
control over the provision of that benchmark, that person should not be subject
to the requirements imposed on administrators by this Regulation. This
therefore leaves journalists free when performing journalistic activities to
report on financial and commodities markets. Accordingly the definition of the
administrator of a benchmark has been tightly defined to ensure that it
encompasses the provision of a benchmark but does not capture within its scope
journalistic activities.

3.           LEGAL ELEMENTS OF THE
PROPOSAL

3.1.        Legal basis

The proposal is based on Article 114 of the
Treaty on the Functioning of the European Union (“TFEU”).

3.2.        Subsidiarity and
proportionality

The Commission proposal to regulate
benchmarks is in line with the principle of subsidiarity as laid down in Article
5(3) of the Treaty on European Union (TEU), which requires the Union to take
action only if and in so far as the objectives of the proposed action cannot be
sufficiently achieved by the Member States and can therefore, by reason of the
scale or effects of the proposed action, be better achieved by the Union.

While many benchmarks are national, the
benchmark industry as a whole is international in both production and use.
While action at national level in relation to national indices may help ensure
that any intervention is appropriately tailored to the problems at a national
level, this may lead to a patchwork of divergent rules, could create an
un-level playing field within the single market and result in an inconsistent
and un-coordinated approach. Benchmarks are used to price a wide variety of
cross border transactions, in particular in the interbank funding market and
derivatives. A patchwork of national rules would impede the opportunity to
produce cross border benchmarks and therefore impede these cross border
transactions. This problem has been recognised by the G20 and FSB which charged
IOSCO with producing a global set of principles to apply to financial
benchmarks. An EU initiative will help enhance the single market by creating a
common framework for reliable and correctly used benchmarks across different
Member States.

While in most Member States there is
currently no regulation at national level on the production of benchmarks, two
Member States have already adopted national legislation on interest rate
benchmarks in their national currencies. Moreover, IOSCO has recently agreed
principles on benchmarks which are to be implemented by its members. However
these principles provide flexibility as to the scope and means of their
implementation and in relation to certain terms. In the absence of a harmonised
European framework for benchmarks, some Member States are likely to adopt
legislation at national level which would be divergent. For example, at this
point of time, the scope of the legislation of one Member State would appear as
wide as IOSCO’s while the legislation of the other Member State that has
introduced rules regarding benchmarks only covers interest rate benchmarks. These
divergent approaches would result in fragmentation of the internal market,
since administrators and users of benchmarks would be subject to different
rules in different Member States. In the absence of a Union legislative
framework, the individual national actions would also be ineffective, as there
is no obligation or incentive on Member States to cooperate with each other and
the absence of such cooperation leaves scope for regulatory arbitrage.

Certain aspects of investor protection in
this field are generally covered by MiFID. In particular, there is the
requirement under MiFID for firms to carry out an assessment of
appropriateness. This test shall determine whether the client has the necessary
experience and knowledge in order to understand the risks involved in relation
to the product or investment service offered or demanded. Thus, it provides a
sufficient level of investor protection.

Concerning consumer protection, the
Consumer Credit Directive includes rules on the disclosure of adequate
information, as well as the soon to be adopted Mortgage Credit Directive which
also includes the requirement to recommend suitable credit agreements. However,
those EU consumer protection rules do not address the particular issue of the
suitability of benchmarks in financial contracts. Furthermore, unequal
bargaining power and the use of standard terms means that consumers may have a
limited choice about the benchmark used. Consumers lack the necessary knowledge
or experience to appropriately assess benchmark suitability. Therefore this
proposal should complement the existing EU legislation in this area by ensuring
that the responsibility for assessing the suitability of benchmarks for retail
contracts rests with the lenders or creditors. This will also ensure harmonised
EU consumer protection rules on the use of benchmarks to reference financial
contracts. A common regulatory framework for consumers and creditors in
relation to financial contracts is also required to enable the use of cross
border benchmarks rather than a fragmented national approach. As a result of
consumer complaints and litigation relating to the use of unsuitable benchmarks
in several Member States, it is likely that divergent measures on consumer
protection would be adopted at national level. This could result in
fragmentation of the internal market.

The proposed Regulation is also
proportionate, as required by Article 5(4) of TEU. It targets only those indices
that are used to reference financial instruments, or financial contracts such
as mortgages, because these are the benchmark that may have a direct and
certain economic impact if they are manipulated. In addition, the proposed Regulation
contains provisions to tailor its requirements to different sectors and the
different types of benchmark such as commodity, interbank interest rate and
benchmarks that use exchange data. A proportionate approach is ensured since
the vast majority of obligations are imposed on the administrator of the
benchmark. Many administrators of benchmarks already comply with at least some
of these requirements, implying that the administrative burden should not
increase disporportionately. Moreover, processes for internal governance and
control are only required from supervised contributors, meaning that the impact
on non supervised contributors to a benchmark, for example a nonregistered
trader, will not be substantial. Finally, in all important parts, this
Regulation is aligned with the internationally agreed IOSCO Principles for
financial benchmarks published on 17 July 2013, which has been extensively
consulted with stakeholders. This will limit adaptation costs.

Against this background, EU action is
appropriate in terms of the principles of subsidiarity and proportionality.

3.3.        Choice of instrument

A Regulation is considered to be the most
appropriate legal instrument to introduce uniform rules concerning the
provision of benchmarks, the contribution of input data to those benchmarks,
and the use of benchmarks in the Union. The provisions of this proposal are
laying down certain requirements for administrators, contributors and users of
benchmarks. The cross border nature of many benchmarks creates a need for
maximum harmonisation of these requirements. Since the regulation of benchmarks
involves measures specifying precise requirements that relate to data and
methodologies, even small divergences in the approach taken could lead to
significant impediments in the cross border provision of benchmarks. The use of
a Regulation, which is directly applicable without requiring national legislation,
will restrict the possibility of divergent measures being taken by competent
authorities at national level, and will ensure a consistent approach and
greater legal certainty throughout the EU.

3.4.        Detailed explanation of
the proposal

3.4.1.     Scope (Article 2)

The proposed Regulation applies to all
published benchmarks that are used to reference a financial instrument traded or
admitted to trading on a regulated venue, or a financial contract (such as
mortgages) and benchmarks that measure the performance of an investment fund.

Where there is discretion in the benchmark
process which is subject to a conflict of interest, there is a risk of
manipulation in the absence of adequate governance and controls. Therefore
indices which involve discretion should be subject to regulatory measures.
While the degree of discretion varies, all indices involve some discretion.
Therefore, the scope should include all benchmarks, regardless of the method of
calculation or the nature of the contributions.

The scope should include all indices,
including published indices, since any doubts about the accuracy and
reliability of such indices are likely to inflict more damage on a wider
population than indices which are not public.

Where benchmarks are used as a reference price
for a financial instrument or contract, any manipulation causes economic loss.
In the case where the contributor also uses the financial instrument that
references it, an inherent conflict of interest exists and there is an
incentive to manipulate. Furthermore, were benchmarks are used to measure the
performance of financial instruments, they may be subject to conflicts of
interests and their manipulation will lead to suboptimal investment choices by
investors. Therefore, it is important to target all benchmarks that price a
financial instrument or consumer contract or that measure the performance of
investment funds.

For widely used benchmarks, even a minor
manipulation may have a significant impact but the vulnerability and importance
of a benchmark varies over time. Restricting the scope by reference to
important or vulnerable indices would not address the risks that any benchmark
may pose in the future.

Given all these considerations and in order
to ensure a clear and comprehensive application of the Regulation, the scope is
also not dependent on the nature of the input data i.e. whether the input data
is an economic (e.g. a share price) or non-economic (e.g. a weather parameter)
number or value. This is because the critical element when determining the
scope is how the output value determines the value of a financial instrument,
financial contract or measures the performance of an investment fund. In this
context, once a value is used to reference a financial contract or instrument,
its previous non-economic nature becomes irrelevant.

As regards the administrators of benchmarks,
all administrators are potentially subject to conflicts of interest, exercise
discretion and may have inadequate governance and control systems in place. Thus,
they need to be subject to appropriate regulation. Moreover, as they control
the benchmark process, an authorisation requirement is imposed on all benchmark
administrators as supervision is the most effective way to ensure the integrity
of benchmarks.

Concerning contributors to benchmarks,
these are also potentially subject to conflicts of interest, exercise
discretion and so may be the source of manipulation. Contributing to a
benchmark is a voluntary activity. If any initiative requires contributors to
significantly change their business models, they may cease to contribute to the
benchmark concerned. However, for entities already subject to regulation and
supervision, (so-called supervised contributors), requiring good governance and
control systems is not expected to lead to substantial costs or
disproportionate administrative burden. It is therefore appropriate to include
all supervised contributors within the scope of this Regulation.

For contributors not subject to regulation
and supervision (non-supervised contributors), authorisation or otherwise
becoming subject to rules could impose significant costs and administrative
burden. Regulators would also be ineffective supervising firms for which they
have no expertise. Imposing supervision on currently non-supervised entities
and persons would therefore impose significant costs and provide minimal
benefits. Nonetheless, certain parts of this Regulation, as for example the
need to provide accurate and reliable input data are indirectly relevant for
all contributors since they remain subject to the Market Abuse Regulation and
will be contractually bound to comply with the requirement of the
administrator’s code of conduct under this Regulation.

The proposal exempts from its scope central
banks that are members of the European System of Central Banks.

Finally, in some cases a person may produce
an index but not be aware that this index is a benchmark because, for example,
it is used as a reference to a financial instrument without the knowledge of
the producer. The regulation therefore provides a mechanism to notify the
producers that their index has or may become a benchmark and give them the
power to refuse that it be used as a benchmark. If the producer consents, he
will become subject to the proposed Regulation in respect of that benchmark. If
he refuses, the index may not be used as a benchmark and the administrator
requirements in this Regulation will not apply.

3.4.2.     Governance and Control of
Administrators (Article 5-6)

The proposal ensures that conflicts of
interest are avoided and ensures that governance and controls are effective. These
are addressed by requirements on governance and controls, with more detailed
requirements included in the annex.

3.4.3.     Input Data and Methodology
(Articles 7)

The proposal sets out three requirements, detailed
in the annex, in respect of the input data and methodology used to produce a
benchmark to reduce discretion and enhance integrity and reliability:

– 
the input data should be sufficient and accurate
so that it represent the actual market or economic reality that the benchmark
is intended to measure;

– 
the input data should be obtained from a
reliable and representative panel or sample of contributors; and

– 
the administrator should use robust and reliable
methodology for determining the benchmark.

3.4.4.     Contributor Requirements (Articles
9 and 11)

The administrator is required to draw up a
contributor code of conduct which clearly specifies the obligations and
responsibilities of the contributors when they provide input data for the
determination of the benchmark. Where the contributors are already regulated
entities they are also required to avoid conflicts of interest and implement
adequate controls.

3.4.5.     Sectoral Requirements (Article
10 and 12-14)

In order to ensure proportionality and
ensure that the proposal is adequately tailored to different benchmark types
and sectors, annexes II and III contain more detailed provisions on commodity
benchmarks and interest rate benchmarks. Additional requirements are imposed on
critical benchmarks, including the power for the relevant competent authority
to mandate contributions. Benchmarks whose input data is provided by regulated
venues are also released from certain obligations to avoid dual regulation.

3.4.6.     Transparency and Consumer Protection
(Articles 15-18)

Investor protection is enhanced through
transparency provisions. Administrators are required to provide a statement
setting out what the benchmark measures, its vulnerabilities, along with the
publication of underlying data to allow users to choose the most appropriate
and suitable benchmark. This statement also provides notice that the users
should make adequate provision in the event that the administrator ceases to
provide the benchmark. Finally a suitability assessment is imposed on banks in
their dealings with consumers in financial contracts such as loans secured by
mortgages.

3.4.7.     Supervision and
Authorisation Procedure for Administrators (Articles 22 -37)

The activity of the provision of benchmarks
will be subject to prior authorisation and on-going supervision. The proposal
lays down the conditions and the procedure for administrators of benchmarks
located in the Union to obtain authorisation from the relevant competent
authority. The proposal creates a mechanism to ensure effective enforcement of
the Regulation. It gives competent authorities the necessary powers to ensure
that administrators comply with the Regulation.

For critical benchmarks colleges of
supervisors should be formed to enhance the exchange of information and ensure
uniform authorisation and supervision.

4.           BUDGETARY IMPLICATION

The proposal has implications for the
Community budget.

The specific budget implications of the
proposal relate to task allocated to ESMA, as specified in the legislative
financial statements accompanying this proposal. The new tasks will be carried
out with the human resources available within the annual budgetary allocation
procedure, in the light of budgetary constraints which are applicable to all EU
bodies and in line with the financial programming for agencies.

Notably, the resources needed by the agency
for the new tasks will be consistent and compatible with the human and
financing programming for ESMA set by the recent Communication to the European
Parliament and the Council – Programming of human and financial resources for
decentralised agencies 2014-2020' (COM(2013)519).

Specific budgetary implications for the
Commission are also assessed in the financial statement accompanying this
proposal.In summary, the main budgetary implications of the proposal are:

a) DG MARKT staff: 1 AD staff member
(full-time) for drafting delegated acts, as well as for the evaluation,
monitoring of the implementation and potential review of the initiative. The
total estimated costs are € 0.141 M yearly.

b) ESMA:

(i) Staff costs: two
temporary agents for participating and mediating in the colleges of supervisors
for critical benchmarks, providing technical advice to the Commission on the
implementation of this Regulation, coordinating the development of cooperation
arrangements with third countries, drafting guidelines to promote convergence
and cross-sector consistency of penalty regimes and maintaining registers of
notifications on the use of benchmarks and a list of registered benchmark administrators.

The total yearly costs of these 2 temporary
agents would be of €0.326 M, towards which the Commission would contribute 40%
(€ 0.130 M) and Member States 60% (€ 0.196 M) yearly.

(ii) Operational and infrastructure costs:
an initial expense of € 0.25 M is also estimated for ESMA, towards which the Commission would contribute 40% (€ 0.1 M) and
Member States 60% (€ 0.15 M) in 2015. This expense relates mainly to IT systems
for ESMA to fulfil the requirements of:

- Maintaining a list of administrators
registered in accordance with this Regulation and third country firms providing
benchmarks in the Union.

- Receiving notifications of the use of a
benchmark in a financial instrument or financial contract within the Union, and
maintaining a register and ensuring that administrators are aware of this use.

ESMA will also need to produce a report on
the application of this Regulation by 1 January 2018 with a total cost of € 0.3
M towards which the Commission would contribute 40% (€ 0.12 M) and Member
States 60% (€ 0.18 M) in 2017.

2013/0314 (COD)

Proposal for a

REGULATION OF THE EUROPEAN PARLIAMENT
AND OF THE COUNCIL

on indices used as benchmarks in financial
instruments and financial contracts

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE
COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty on the
Functioning of the European Union, and in particular Article 114 thereof,

Having regard to the proposal from the
European Commission,

After transmission of the draft legislative
act to the national Parliaments,

Having regard to the opinion of the
European Economic and Social Committee[11],

Having regard to the opinion of the
European Central Bank,

Acting in accordance with the ordinary
legislative procedure,

Whereas:

(1)       The pricing of many
financial instruments and financial contracts depends on the accuracy and
integrity of benchmarks. Cases of manipulation of interest rate benchmarks such
as LIBOR and EURIBOR, as well as allegations that energy, oil and foreign
exchange benchmarks have been manipulated, have demonstrated that benchmarks whose
setting processes share certain characteristics, such as being subject to conflicts
of interest, the use of discretion and weak governance, may be vulnerable to
manipulation. Failures in, or doubts about, the accuracy and integrity of indices
used as benchmarks may undermine market confidence, cause losses to consumers
and investors and distort the real economy. It is therefore necessary to ensure
the accuracy, robustness and integrity of benchmarks and the benchmark setting
process.

(2)       Directive 2004/39/EC of
the European Parliament and of the Council of 21 April 2004 on markets in
financial instruments[12]
contains certain requirements with respect to the reliability of benchmarks
used to price a listed financial instrument. Directive 2003/71/EC of the
European Parliament and of the Council of 4 November 2003 on the prospectus to
be published when securities are offered to the public or admitted to trading[13] contains certain requirements
on benchmarks used by issuers. Directive 2009/65/EC of the European Parliament
and of the Council of 13 July 2009 on the coordination of laws, regulations and
administrative provisions relating to undertakings for collective investment in
transferable securities (UCITS)[14]
contains certain requirements on the use of benchmarks by UCITS investment
funds. Regulation (EU) No 1227/2011 of the European Parliament and of the
Council of 25 October 2011 on wholesale energy market integrity[15] contains certain provisions
which prohibit the manipulation of benchmarks that are used for wholesale
energy products. However these legislative acts only cover certain aspects of certain
benchmarks and do not address all the vulnerabilities in the process of
producing all benchmarks.

(3)       Benchmarks are vital in
pricing cross-border transactions and thereby facilitating the effective
functioning of the internal market in a wide variety of financial instruments
and services. Many benchmarks used as reference rates in financial contracts,
in particular mortgages, are produced in one Member State but used by credit
institutions and consumers in other Member States. In addition, these credit
institutions often hedge their risks or obtain the funding for granting these
financial contracts in the cross border interbank market. Only two Member
States have adopted national legislation on benchmarks, but their respective
legal frameworks on benchmarks already show divergences regarding aspects such
as the scope of application. In addition, the International Organisation
Securities Commissions (IOSCO) has recently agreed principles on benchmarks
and, since these principles provide a certain flexibility as to their exact
scope and means of their implementation and in relation to certain terms,
Member States are likely to adopt legislation at national level which would
implement such principles divergently.

(4)       These divergent approaches
would result in fragmentation of the internal market since administrators and
users of benchmarks would be subject to different rules in different Member
States and benchmarks produced in a Member State could be prevented from being
used in other Member States. In the absence of a harmonised framework to ensure
the accuracy and integrity of benchmarks used in financial instruments and
financial contracts in the Union it is therefore likely that differences in
Member States legislation will create obstacles to the smooth functioning of
the internal market for the provision of benchmarks.

(5)       EU consumer protection
rules do not cover the particular issue of the suitability of benchmarks in
financial contracts. As a result of consumer complaints and litigation relating
to the use of unsuitable benchmarks in several Member States, it is likely that
divergent measures, inspired by legitimate concerns of  consumer protection,
would be adopted at national level, which could result in fragmentation of the
internal market due to the divergent conditions of competition attached to
different levels of consumer protection.

(6)       Therefore to ensure the
proper functioning of the internal market and improve the conditions of its
functioning, in particular with regard to financial markets, and to ensure a
high level of consumer and investor protection, it is therefore appropriate to
lay down a regulatory framework for benchmarks at Union level.

(7)       It is appropriate and
necessary for those rules to take the legislative form of a Regulation in order
to ensure that provisions directly imposing obligations on persons involved in benchmark
production, contribution and use are applied in a uniform manner throughout the
Union. Since a legal framework for the provision of benchmarks necessarily
involves measures specifying precise requirements on all different aspects
inherent to the provision of benchmarks, even small divergences on the approach
taken regarding one of these aspects could lead to significant impediments in
the cross border provision of benchmarks. Therefore, the use of a Regulation,
which is directly applicable without requiring national legislation, should
reduce the possibility of divergent measures being taken at national level, and
should ensure a consistent approach, greater legal certainty and prevent the
appearance of significant impediments in the cross-border provision of
benchmarks.

(8)       The scope of this
Regulation should be as broad as necessary to create a preventive regulatory
framework. The production of benchmarks involves discretion in their determination
and is inherently subject to certain types of conflicts of interest, which
implies the existence of opportunities and incentives to manipulate those
benchmarks. These risk factors are common to all benchmarks, and all of them
should be made subject to adequate governance and control requirements. Since the
vulnerability and importance of a benchmark varies over time, restricting the
scope by reference to currently important or vulnerable indices would not
address the risks that any benchmark may pose in the future. In particular,
benchmarks that are currently not widely used may be so used in the future, so
that, in their regard, even a minor manipulation may have significant impact.

(9)       The critical determinant
of the scope of this Regulation should be whether the output value of the
benchmark determines the value of a financial instrument, financial contract or
measures the performance of an investment fund. Therefore the scope should not
be dependent on the nature of the input data. Benchmarks calculated from
economic input data, such as share prices and non-economic number or values
such as weather parameters should thus be included. The framework should cover
those benchmarks subject to these risks, but should also provide for a
proportionate response to the risks that different benchmarks pose. This
Regulation should therefore cover all benchmarks which are used to price
financial instruments listed or traded on regulated venues.

(10)     A large number of consumers
are parties to financial contracts, in particular consumer credit agreements
secured by mortgages, that reference benchmarks that are subject to the same
risks. This Regulation should therefore cover the indices or reference rates
referred to in [Directive 2013/.../EU of the European Parliament and of the
Council of on credit agreements for consumers relating to residential immovable
property and amending Directive 2008/48/EC.]

(11)     Many investment indices
involve significant conflicts of interest and are used to measure the
performance of a fund such as a UCITS fund. Some of these benchmarks are
published and others are made available, for free or on payment of a fee, to
the public or a section of the public and their manipulation may adversely
affect investors. This Regulation should therefore cover indices or reference
rates that are used to measure the performance of an investment fund.

(12)     All benchmark
administrators are potentially subject to conflicts of interest, exercise
discretion and may have inadequate governance and control systems in place.
Further, as administrators control the benchmark process, requiring authorisation
and supervision of administrators is the most effective way of ensuring the
integrity of benchmarks.

(13)     Contributors are subject to
potential conflicts of interest, exercise discretion and so may be the source
of manipulation. Contributing to a benchmark is a voluntary activity. If any
initiative requires contributors to significantly change their business models,
they may cease to contribute. However, for entities already subject to
regulation and supervision, requiring good governance and control systems is
not expected to lead to substantial costs or disproportionate administrative
burden. Therefore this Regulation imposes certain obligation on supervised
contributors.

(14)     An administrator is the
natural or legal person that has control over the provision of a benchmark, in
particular who administers the benchmark, collects and analyses the input data,
determines the benchmark and in some cases publishes the benchmark. However,
where a person merely publishes or refers to a benchmark as part of his or her
journalistic activities but does not have control over the provision of that
benchmark, that person should not be subject to the requirements imposed on
administrators by this Regulation.

(15)     An index is calculated
using a formula or some other methodology on the basis of underlying values. Discretion
exists in constructing this formula, performing the calculation or determining
the input data. This discretion creates a risk of manipulation and therefore
all benchmarks sharing this characteristic should be covered by this
Regulation. However where a single price or value is used as a reference to a
financial instrument, for example where the price of a single security is the
reference price for an option, there is no calculation, input data or
discretion. Therefore single price or single value reference prices should not
be considered benchmarks for the purposes of this Regulation. Reference prices
or settlement prices produced by Central Counterparties (CCPs) should not be
considered benchmarks because they are used to determine settlement, margins
and risk management and thus do not determine the amount payable under a
financial instrument or the value of a financial instrument.

(16)     Benchmarks that are provided
by central banks in the Union are subject to control by public authorities and
meet principles, standards and procedures which ensure the accuracy, integrity
and independence of their benchmarks as provided for by this Regulation. It is therefore
not necessary that these benchmarks should be subject to this Regulation.
However third country central banks may also provide benchmarks that are used
in the Union. It is necessary to determine that only those central banks of
third countries that produce benchmarks are exempted from the obligations under
this Regulation that are subject to similar standards to those established by
this Regulation.

(17)     Vulnerabilities in the
process of providing a benchmark that are not subject to adequate governance
create the possibility to manipulate a benchmark. Where benchmarks are
available to the public the full extent of these risks may not be taken into
account and so insufficient controls and governance may be implemented. In
order to ensure the integrity of benchmarks, benchmark administrators should be
required to implement adequate governance arrangements to control these
conflicts of interest and to safeguard confidence in the integrity of
benchmarks. Even where effectively managed, most administrators are subject to
some conflicts of interest and may have to make judgements and decisions which
affect a diverse group of stakeholders. It is therefore necessary that
administrators have an independent function to oversee the implementation and
effectiveness of the governance arrangements that provide effective oversight.

(18)     The manipulation or
unreliability of benchmarks can cause damage to investors and consumers.
Therefore, this Regulation should set out a framework for retention of records
by administrators and contributors as well as providing transparency about a
benchmark's purpose and input data which facilitates more efficient and fairer
resolution of any potential claims in accordance with national or Union law.

(19)     Auditing and the effective
enforcement of this Regulation requires ex post analysis and evidence and it is
therefore necessary that benchmark administrators keep adequate records relating
to the calculation of the benchmark for a sufficient period of time. The
reality that a benchmark seeks to measure and the environment in which it is
measured are likely to change over time. Therefore it is necessary that the process
and methodology of the provision of benchmarks are audited or reviewed on a periodic
basis to identify shortcomings and possible improvements. Many stakeholders may
be impacted by failures in the provision of the benchmark and can help identify
these shortcomings. It is therefore necessary that an independent complaints
procedure is established to ensure that those stakeholders are able to notify
the benchmark administrator of complaints and that the benchmark administrator objectively
evaluates the merits of any complaint.

(20)     The provision of benchmarks
frequently involves the outsourcing of important functions such as calculating
the benchmark, gathering the input data and disseminating the benchmark. In
order to ensure the effectiveness of the governance arrangements, it is
necessary to ensure that any such outsourcing does not relieve a benchmark
administrator of any of its obligations and responsibilities, and is done in
such a way that it does not interfere with either the administrators ability to
meet these obligations or responsibilities, or the relevant competent authority’s
ability to supervise them.

(21)     The benchmark administrator
is the central recipient of the input data and is able to evaluate the
integrity and accuracy of this input data on a consistent basis. It is
therefore necessary that the benchmark administrator has adequate controls to
assess accuracy of input data and notifies the relevant competent authority of
suspicious data.

(22)     Employees of the
administrator may identify possible breaches of this Regulation or potential
vulnerabilities that could lead to manipulation or attempted manipulation. This
Regulation should therefore ensure that adequate arrangements are in place to
enable employees to alert administrators confidentially of possible breaches of
this Regulation.

(23)     Any discretion that can be
exercised in providing input data creates an opportunity to manipulate a
benchmark. Where the input data is transaction based data, there is less
discretion and therefore the opportunity to manipulate the data is reduced. As
a general rule benchmark administrators should therefore use actual transaction
input data where possible but other data may be used in those cases where the
transaction data is insufficient to ensure the integrity and accuracy of the
benchmark.

(24)     The accuracy and
reliability of a benchmark in measuring the economic reality it is intended to
track depends on the methodology and input data used. It is therefore necessary
to adopt a methodology that ensures the benchmark’s reliability and accuracy.

(25)     It may be necessary to
change the methodology to ensure the continued accuracy of the benchmark, but
any changes in the methodology have an impact on the users and stakeholders in
the benchmark. It is therefore necessary to specify the procedures to be
followed when changing the benchmark methodology, including the need for
consultation, so that users and stakeholders can take the necessary actions in
light of these changes or notify the administrator if they have concerns about
these changes.

(26)     The integrity and accuracy
of benchmarks depends on the integrity and accuracy of the input data provided
by contributors. It is essential that the obligations of the contributors in
respect of this input data are clearly specified, can be relied on and are
consistent with the benchmark administrator’s controls and methodology. It is
therefore necessary that the benchmark administrator produces a code of conduct
to specify these requirements and that the contributors are bound by that code
of conduct.

(27)     Many benchmarks are
determined from input data that is provided by regulated venues, energy
exchanges and emission allowance auctions. These venues are subject to
regulation and supervision that ensures the integrity of the input data,
provides for governance requirements and procedures for the notification of
breaches. Therefore these benchmarks are released from certain obligations in
order to avoid dual regulation and because their supervision ensures the
integrity of the input data used.

(28)     Contributors may be subject
to conflicts of interest and may exercise discretion in the determination of
the input data. Therefore it is necessary that contributors are subject to
governance arrangements to ensure that these conflicts are managed and that the
input data is accurate, conforms to the administrator’s requirements and can be
validated.

(29)     Different types of
benchmark and different benchmark sectors have different characteristics,
vulnerabilities and risks. The provisions of this Regulation should be further
specified for particular benchmark sectors and types. Interbank interest rate
benchmarks are benchmarks that play an important role in the transmission of
monetary policy and so it is necessary to specify how these provisions would
apply to these benchmarks in this Regulation. Commodity benchmarks are widely
used and have sector specific characteristics and so it is necessary to specify
how these provisions would apply to these benchmarks in this Regulation.

(30)     The failure of certain critical
benchmarks may have a significant impact on financial stability, market
orderliness or investors and it is therefore necessary that additional
requirements apply to ensure the integrity and robustness of these critical
benchmarks. Where a benchmark references a significant value of financial
instruments it will have such an impact. It is therefore necessary that the
Commission determines those benchmarks that reference financial instruments
above a certain threshold and should be considered critical benchmarks.

(31)     Contributors ceasing to
contribute may undermine the credibility of critical benchmarks. In order to
address this vulnerability, it is therefore necessary to include a power for
the relevant competent authority to require mandatory contributions to critical
benchmarks.

(32)     In order for users of benchmarks
to make appropriate choices of, and understand the risks of, benchmarks, they
need to know what the benchmark measures and their vulnerabilities. Therefore
the benchmark administrator should publish a statement specifying these
elements as well as publish the input data used to determine the benchmark.

(33)     Consumers may enter into financial
contracts, in particular mortgages and consumer credit contracts that reference
a benchmark, but unequal bargaining power and the use of standard terms mean
that they may have a limited choice about the benchmark used. It is therefore
necessary to ensure that the responsibility for assessing the suitability of
such a benchmark for the consumer rests with the lenders or creditors who are supervised
entities because they have a greater ability to choose the benchmark. However the
suitability assessment should not be required by this Regulation for financial
instruments referencing a benchmark, as it is already provided for in Directive
[MIFID].

(34)     This Regulation should take
into account the Principles for financial benchmarks issued by the
International Organization of Securities Commissions (IOSCO) (hereinafter
referred to as ‘IOSCO Principles’) on the 17 July 2013 which serve as a global
standard for regulatory requirements for benchmarks. It is necessary for
investor protection that an assessment that the supervisions and regulation in
any third country are equivalent to Union supervision and regulation of
benchmarks takes place before any benchmark provided from that third country can
be used in the Union.

(35)     The administrator should be
authorised and supervised by the competent authority of the Member State where
that administrator is located.

(36)     In some circumstances a
person may provide an index but be unaware that this index is being used as a
reference for a financial instrument. This is particularly the case where the
users and benchmark administrator are located in different Member States. It is
therefore necessary that competent authorities, whenever they become aware of
the use of a benchmark in a financial instrument, notify a central coordinating
authority such as ESMA, who should notify the administrator.

(37)     A set of effective tools
and powers and resources for the competent authorities of Member States
guarantees supervisory effectiveness. This Regulation therefore should in
particular provide for a minimum set of supervisory and investigative powers with
which competent authorities of Member States should be entrusted in accordance
with national law. When exercising their powers under this Regulation competent
authorities and ESMA should act objectively and impartially and remain
autonomous in their decision making.

(38)     For the purpose of
detecting breaches of this Regulation, it is necessary for competent
authorities to be able to access, in accordance with national law, the premises
of natural and legal persons in order to seize documents. The access to such
premises is necessary when there is reasonable suspicion that documents and
other data related to the subject matter of an inspection or investigation
exist and may be relevant to prove a breach of this Regulation. Additionally
the access to such premises is necessary where: the person to whom a demand for
information has already been made fails to comply with it; or where there are
reasonable grounds for believing that if a demand were to be made, it would not
be complied with, or that the documents or information to which the information
requirement relates, would be removed, tampered with or destroyed. If prior
authorisation is needed from the judicial authority of the Member State
concerned, in accordance with national law, such power for access into premises
shall be used after having obtained that prior judicial authorisation.

(39)     Existing recordings of
telephone conversations and data traffic records from supervised entities may constitute
crucial, and sometimes the only evidence to detect and prove the existence of breaches
of this Regulation, notably the compliance with governance and control
requirements. Such records and recordings can help to verify the identity of
the person responsible for the submission, those responsible for its approval,
and whether physical separation of employees is maintained. Therefore, competent
authorities should be able to require existing recordings of telephone
conversations, electronic communications and data traffic records held by supervised
entities, in those cases where a reasonable suspicion exists that such recordings
or records related to the subject-matter of the inspection or investigation may
be relevant to prove a breach of this Regulation.

(40)     Some of the provisions of
this Regulation apply to natural or legal persons in third countries who may
use benchmarks or be contributors to benchmarks or may be otherwise involved in
the benchmark process. Competent authorities should therefore enter into
arrangements with supervisory authorities in third countries. ESMA should
coordinate the development of such cooperation arrangements and the exchange
between competent authorities of information received from third countries.

(41)     This Regulation respects
the fundamental rights and observes the principles recognised in the Treaty on
the Functioning of the European Union (TFEU) and in the Charter of Fundamental
Rights of the European Union, in particular the right to respect for private
and family, the protection of personal data, the right to freedom of expression
and information, the freedom to conduct a business, the right to property, the
right to consumer protection, the right to an effective remedy, the right of
defence. Therefore, this Regulation should be interpreted and applied in
accordance with those rights and principles.

(42)     The rights of defence of
the persons concerned should be fully respected. In particular, persons subject
to proceedings shall be provided with access to the findings upon which the
competent authorities has based the decision and shall be given the right to be
heard.

(43)     Transparency regarding
benchmarks is necessary for reasons of financial market stability and investor
protection. Any exchange or transmission of information by competent
authorities should take place in accordance with the rules on the transfer of
personal data as laid down in Directive 95/46/EC of the European Parliament and
of the Council of 24 October 1995 on the protection of individuals with regard
to the processing of personal data and on the free movement of such data[16]. Any exchange or transmission
of information by ESMA should take place in accordance with the rules on the
transfer of personal data as laid down in Regulation (EC) No 45/2001 of the
European Parliament and of the Council of 18 December 2000 on the protection of
individuals with regard to the processing of personal data by the Community
institutions and bodies and on the free movement of such data[17].

(44)     Taking into consideration
the principles set out in the Commission’s communication on reinforcing
sanctioning regimes in the financial services sector and legal acts of the
Union adopted as a follow-up to that Communication, Member States should lay
down rules on penalties and administrative measures applicable to infringements
of the provisions of this Regulation and should ensure that they are
implemented. Those penalties and administrative measures should be effective,
proportionate and dissuasive.

(45)     Therefore, a set of
administrative measures, sanctions and fines should be provided for to ensure a
common approach in Member States and to enhance their deterrent effect. Sanctions
applied in specific cases should be determined taking into account where
appropriate factors such as the repayment of any identified financial benefit,
the gravity and duration of the breach, any aggravating or mitigating factors,
the need for fines to have a deterrent effect and, where appropriate, include a
reduction in return for cooperation with the competent authority. In
particular, the actual amount of administrative fines to be imposed in a
specific case may reach the maximum level provided for in this Regulation, or
the higher level provided for in national law, for very serious breaches, while
fines significantly lower than the maximum level may be applied to minor
breaches or in case of settlement. The possibility to impose a temporary ban to
exercise management functions within benchmark administrators or contributors should
be available to the competent authority. This Regulation should not limit
Member States in their ability to provide for higher levels of administrative
sanctions.

(46)     In order to ensure that
decisions made by competent authorities have a deterrent effect on the public
at large, they should normally be published. The publication of decisions is
also an important tool for competent authorities to inform market participants
of what behaviour is considered constitute a violation of this Regulation and
to promote wider good behaviour amongst market participants. If such
publication risks causing disproportionate damage to the persons involved,
jeopardises the stability of financial markets or an on-going investigation the
competent authority should publish the sanctions and measures on an anonymous
basis or delay the publication. Competent authorities should have the option
not to publish sanctions where anonymous or delayed publication is considered
insufficient to ensure that the stability of financial markets are not be
jeopardised. Competent authorities are also not required to publish measures
which are deemed to be of a minor nature where publication would be disproportionate.

(47)     Critical benchmarks may
involve contributors, administrators and users in more than one Member State.
Thus, the cessation of the provision of such a benchmark or any events that may
significantly undermine its integrity may have an impact in more than one
Member State meaning that the supervision of such a benchmark by the competent
authority of the Member State in which it is located alone will not be
efficient and effective in terms of addressing the risks that the critical
benchmark poses. To ensure the effective exchange of supervisory information
among competent authorities, coordination of their activities and supervisory
measures, colleges of competent authorities should be formed. The activities of
the colleges should contribute to the harmonised application of rules under
this Regulation and to the convergence of supervisory practices. ESMA's legally
binding mediation is a key element of the achievement of coordination,
supervisory consistency and convergence of supervisory practices. Benchmarks
may reference financial instruments and financial contracts that have a long
duration. In certain cases such benchmarks may no longer be permitted to be
provided once this Regulation comes into effect because they have
characteristics that cannot be adjusted to conform to the requirements of this
Regulation. However, prohibiting the continued provision of such a benchmark
may result in the termination or frustration of the financial instruments or
financial contracts and so harm investors. It is therefore necessary to make
provision to allow for the continued provision of such benchmarks for a
transitional period.

(48)     In order to ensure uniform
conditions for the implementation of this Regulation and further specify
technical elements of the proposal, the power to adopt acts in accordance with Article
290 TFEU should be delegated to the Commission in respect of the specification
of technical elements of definitions, governance and control requirements
applied to administrators and to supervised contributors, requirements
concerning input data and methodology, the code of conduct, specific
requirements for different types of benchmarks and sectors and the information
to be provided in applications for authorisation of administrators.

(49)     The Commission should adopt
draft regulatory technical standards developed by ESMA establishing the minimum
content of cooperation arrangements with the competent authorities of third
countries, by means of delegated acts pursuant to Article 290 TFEU and in accordance
with Articles 10 to 14 of Regulation (EU) No 1095/2010.

(50)     In order to ensure uniform
conditions for the implementation of this Regulation, in regard to certain of
its aspects implementing powers should be granted to the Commission. Those
aspects concern the ascertainment of the equivalence of the legal framework to
which central banks and providers of benchmarks of third countries are subject,
as well of the fact that a benchmark is critical in nature.Those powers should
be exercised in accordance with Regulation (EU) No 182/2011 of the European
Parliament and of the Council of 16 February 2011[18] laying down the rules and
general principles concerning mechanisms for control by Member States of the
Commission’s exercise of implementing powers.

(51)     The Commission should also
be empowered to adopt implementing technical standards developed by ESMA
establishing procedures and forms for exchange of information between competent
authorities and ESMA, by means of implementing acts pursuant to Article 291
TFEU and in accordance with Article 15 of Regulation (EU) No 1095/2010. Since
the objectives of this Regulation, namely to lay down a consistent and
effective regime to address the vulnerabilities that benchmarks pose cannot be
sufficiently achieved by the Member States, given that the overall impact of
the problems relating to benchmarks can be fully perceived only in a Union
context, and can therefore be better achieved at Union level, the Union may
adopt measures, in accordance with the principle of subsidiarity as set out in Article
5 of the Treaty on European Union. In accordance with the principle of
proportionality, as set out in that Article, this Regulation does not go beyond
what is necessary in order to achieve those objectives,

HAVE ADOPTED THIS REGULATION:

TITLE 1 
SUBJECT MATTER, SCOPE AND DEFINITIONS

Article 1 
Subject matter

This Regulation introduces a common
framework to ensure the accuracy and integrity of indices used as benchmarks in
financial instruments and financial contracts in the Union. The Regulation thereby
contributes to the proper functioning of the internal market while achieving a
high level of consumer and investor protection.

Article 2
 Scope

1.           This Regulation shall
apply to the provision of benchmarks, the contribution of input data to a
benchmark and and the use of a benchmark within the Union.

2.           This Regulation shall not
apply to:

(a) 
Members of the European System of Central Banks
(ESCB).

(b) 
Central banks of third countries whose legal
framework is recognised by the Commission as providing for principles,
standards and procedures equivalent to the requirements on the accuracy,
integrity and independence of the provision of benchmarks provided for by this
Regulation.

3.           The Commission shall establish
a list of central banks of third countries referred to in paragraph 2(b).

Those implementing acts shall be adopted in
accordance with the examination procedure referred to in Article 38(2).

Article 3
Definitions

1.           For the purposes of this
Regulation, the following definitions shall apply:

(1) 
‘index’ means any figure:

(a) 
that is published or made available to the
public;

(b) 
that is regularly determined, entirely or
partially, by the application of a formula or any other method of calculation,
or by an assessment;

(c) 
where this determination is made on the basis of
the value of one or more underlying assets, or prices, including estimated
prices, or other values.

(2) 
‘benchmark’ means 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;

(3) 
‘provision of a benchmark’ means:

(a) 
administering the arrangements for determining a
benchmark; and

(b) 
collecting, analysing or processing input data
for the purpose of determining a benchmark; and

(c) 
determining a benchmark through the application
of a formula or other method of calculation or by an assessment of input data
provided for that purpose.

(4) 
‘administrator' means the natural or legal
person that has control over the provision of a benchmark;

(5) 
‘user of a benchmark’ means any person who issues
or owns a financial instrument or is party to a financial contract which
references a benchmark;

(6) 
‘contribution of input data’ means providing any
input data to an administrator, or to another person for the purposes of
passing to an administrator, that is required in connection with the
determination of that benchmark, and is provided for that purpose;

(7) 
‘contributor’ means a natural or legal person
contributing input data;

(8) 
‘supervised contributor’ means a supervised entity
that contributes input data to an administrator located in the Union;

(9) 
‘submitter’ means the natural person employed by
the contributor for the purpose of contributing input data;

(10) 
‘input data’ means the data in respect of the
value of one or more underlying assets, or prices, including estimated prices, or
other values, used by the administrator to determine the benchmark;

(11) 
‘regulated data’ means input data that is contributed
directly from a trading venue as defined in point (25) of paragraph 1 of
Article 2 of [MIFIR] or approved publication arrangement as defined in point (18)
of paragraph 1 of Article 2 of [MIFIR ] or an approved reporting arrangement as
defined in point (20) of paragraph 1 of Article 2 of [MIFIR] in accordance with
mandatory post trade data requirements or an electricity exchange as referred to
in point (j) of paragraph 1 of Article 37 of Directive 2009/72/EC[19] or a natural gas exchange as
referred to in point (j) of paragraph 1 of Article 41 of Directive 2009/73/EC[20] or an auction platform
referred to in Article 26 or in Article 30 of Regulation (EU) No 1031/2010 of
the European Parliament and of the Council;

(12) 
‘transaction data’ means observable prices,
rates, indices or values representing transactions between unaffiliated counterparties
in an active market subject to competitive supply and demand forces;

(13) 
‘financial instrument’ means any of the
instruments listed in Section C of Annex I to Directive 2004/39/EC for which a
request for admission to trading on a trading venue has been made or which are
traded on a trading venue;

(14) 
‘supervised entity’ means the following
entities:

(a) 
credit institutions as defined in point (1) of
Article 3 of Directive 2013/36/EU[21];

(b) 
investment firms as defined in point (1) of
paragraph 1 of Article 2 of [MIFIR];

(c) 
insurance undertakings as defined in point (1)
of Article 13 Directive 2009/138/EC[22];

(d) 
reinsurance undertakings as defined in point (1)
of Article 13 Directive 2009/138/EC;

(e) 
undertakings for collective investment in
transferable securities (UCITS) as defined in Article 1(2) of Directive
2009/65/EU[23];

(f) 
alternative investment fund managers (AIFMs) as
defined in point (b) of Article 4(1) of Directive 2011/61/EU of the European
Parliament and of the Council[24];

(g) 
central counterparties as defined in point (1)
of Article 2 of Regulation (EU) No 648/2012 of the European Parliament and of
the Council[25];

(h) 
trade repositories as defined in point (2) of
Article 2 of Regulation (EU) No 648/2012;

(i) 
an administrator;

(15) 
‘financial contract’ means:

(a) 
any credit agreement as defined in point (c) of
Article 3 of Directive 2008/48/EC of the European Parliament and of the Council[26];

(b) 
any credit agreement as defined in point 3 of
Article 3 of [Directive [2013/.../] of the European Parliament and of the Council
on credit agreements relating to residential property];

(16) 
‘investment fund’ means AIFs as defined in point
(a) of paragraph 1 of Article 4 of Directive 2011/61/EU of the European
Parliament and of the Council, or collective investment undertakings falling within
the scope of Directive 2009/65/EU of the European Parliament and of the
Council;

(17) 
‘management body‘ means the governing body,
comprising the supervisory and the management function, which has ultimate
decision-making authority and is empowered to set the entity’s strategy,
objectives and overall direction;

(18) 
‘consumer’ means a natural person who, in
financial contracts covered by this Regulation is acting for purposes which are
outside his trade, business or profession;

(19) 
'interbank interest rate benchmark' means a
benchmark where the underlying asset for the purposes of point (1)(c) of this
Article is the rate at which banks may lend to, or borrow from other banks;

(20) 
‘commodity benchmark' means a benchmark where
the underlying asset for the purposes of point (1)(c) of this Article is a
commodity within the meaning of point (2) of Article 2 of Commission Regulation
(EC) No 1287/2006[27];
Emission allowances as defined in point (11) of Section C of Annex I of [MiFID]
shall not be considered commodities for the purpose of this Regulation;

(21) 
‘critical benchmark’ means a benchmark, the
majority of contributors to which are supervised entities and that reference financial
instruments having a notional value of at least 500 billion euro;

(22) 
‘located’ means in relation to a legal person,
the Member State or third country where that person’s registered office or
other official address is situated and in relation to a natural person, the Member
State or third country where that person is resident for tax purposes.

2.           The Commission shall be
empowered to adopt delegated acts in accordance with Article 37 with a view to
specify further technical elements of the definitions laid down in paragraph 1,
in particular specifying what constitutes making available to the public for
the purposes of the definition of an index, and in order to take account of
market or technological developments.

Where applicable, the Commission shall take
into account international convergence of supervisory practice in relation to benchmarks.

Article 4
Exclusion of administrators unaware of the use of benchmarks provided by them
and non consenting administrators

1.           This Regulation shall not
apply to an administrator in respect of a benchmark provided by him where that
administrator is unaware and could not reasonably have been aware that that
benchmark is used for the purposes referred to in point (2) of Article 3(1).

2.           This Regulation shall not
apply to the administrator of a benchmark referred to in Article 25(3) in
respect of that benchmark.

TITLE II
 BENCHMARK INTEGRITY AND RELIABILITY

Chapter
1 
Governance and Control of Administrators

Article 5 
Governance requirements

1.           The following governance
requirements shall apply to the administrator:

(a) 
the administrator shall have robust governance
arrangements, which include a clear organisational structure with well defined,
transparent and consistent roles and responsibilities for all persons involved
in the provision of a benchmark.

The administrator shall take all necessary
steps to ensure that the provision of a benchmark is not affected by any
existing or potential conflict of interest and that, where any discretion or
judgement in the benchmark process is required, it is independently and
honestly exercised (‘Governance and conflicts of interest’);

(b) 
the administrator shall establish an oversight
function to provide oversight of all aspects of the provision of its benchmarks
(‘Oversight’);

(c) 
the administrator shall have a control framework
that ensures that the benchmark is provided and published or made available in
accordance with this Regulation (‘Controls’);

(d) 
the administrator shall have an accountability
framework covering record keeping, auditing and review, and complaints process,
that provides evidence of compliance with the requirements of this Regulation
(‘Accountability’).

2.           An administrator shall
comply with the governance and control requirements set out in Section A of Annex
1.

3.           The Commission shall be
empowered to adopt delegated acts in accordance with Article 37 to further
specify the governance and control requirements under Section A of Annex 1. The
Commission shall take account of the following:

(a) 
developments in benchmarks and financial markets
in light of international convergence of supervisory practice in relation to governance
requirements of benchmarks;

(b) 
specific features of different types of
benchmarks and administrators;

(c) 
existing or potential conflicts of interest in
the provision of benchmarks, the vulnerability of the benchmarks to
manipulation and the importance of benchmarks to financial stability, markets
and investors.

Article 6
Outsourcing

1.           Administrators shall not outsource
functions in the provision of a benchmark in such a way as to impair materially
the administrator’s control over the provision of the benchmark or the ability
of the relevant competent authority to supervise the benchmark.

2.           Where outsourcing takes
place, an administrator shall ensure that the outsourcing requirements set out
in Section B of Annex 1 are satisfied.

3.           Where an administrator
outsources functions or any relevant services and activities in the provision
of a benchmark to any service provider, it shall remain fully responsible for
discharging all of its obligations under this Regulation.

Chapter
2
Input data and methodology and reporting of breaches

Article 7 
Input data and methodology

1.           The provision of a
benchmark shall be governed by the following requirements in respect of its
input data and methodology:

(a) 
The input data shall be sufficient to represent accurately
and reliably the market or economic reality that the benchmark is intended to
measure (‘Sufficient and accurate data’).

The input data shall be transaction data. If
available transaction data is not sufficient to represent accurately and
reliably the market or economic reality that the benchmark is intended to
measure, input data which is not transaction data may be used provided that
such data is verifiable.

(b) 
The administrator shall obtain the input data
from a reliable and representative panel or sample of contributors so as to ensure
that the resultant benchmark is reliable and representative of the market or
economic reality that the benchmark is intended to measure (‘Representative
contributors’).

(c) 
Where the input data of a benchmark is not
transaction data and a contributor is a party to more than 50% of value of
transactions in the market which that the benchmark intends to measure, the
administrator shall verify that the input data represents a market subject to
competitive supply and demand forces. Where the administrator finds that the
input data does not represent a market subject to competitive supply and demand
forces, it shall either change the input data, the contributors or the methodology
to ensure that the input data represents a market subject to competitive supply
and demand forces, or cease to provide that benchmark (‘Market impact’).

(d) 
The administrator shall use a methodology for the
determination of the benchmark that is robust and reliable and that has clear
rules identifying how and when discretion may be exercised in the determination
of that benchmark (‘Robust and reliable methodology’).

(e) 
The administrator shall develop, operate and
administer the benchmark data and methodology transparently (‘Transparency’).

2.           An administrator shall comply
with the requirements concerning input data and methodology set out in Section
C of Annex I.

3.           The Commission shall be
empowered to adopt delegated acts in accordance with Article 37 concerning
measures to further specify the controls in respect of input data, the
circumstances under which transaction data may not be sufficient and how this
can be demonstrated to supervisors and the requirements for developing methodologies
. The Commission shall take account of the following:

(a) 
developments in benchmarks and financial markets
in light of international convergence of supervisory practice in relation to
benchmarks;

(b) 
specific features of different benchmarks and
types of benchmarks; and

(c) 
the vulnerability of benchmarks to manipulation in
light of the methodologies and input data used;

Article 8
Reporting of breaches

1.           The administrator shall
ensure that there are adequate systems and effective controls to ensure the
integrity the input data for the purpose of paragraph 2.

2.           The administrator shall
monitor the input data and contributors in order to identify breaches of the [Market
Abuse Regulation] and any conduct that may involve manipulation or attempted
manipulation of the benchmark and notify the relevant competent authority in
accordance with Article 11(2) of the [Market Abuse Regulation] and provide all
relevant information where it suspects that, in relation to the benchmark,
there has been:

(a) 
a material breach of the [Market Abuse
Regulation];

(b) 
conduct that may involve manipulation or
attempted manipulation of a benchmark; or

(c) 
collusion to manipulate or to attempt to
manipulate a benchmark.

3.           An administrator shall
have procedures for the managers, employees and any other natural persons whose
services are placed at its disposal or under its control to report breaches of
this Regulation internally through a specific, autonomous channel.

Chapter
3 
Code of conduct and requirements for contributors

Article 9
Code of conduct

1.           The administrator shall adopt
a code of conduct for each benchmark clearly specifying the administrator’s and
contributors’ responsibilities and obligations with respect to the provision of
the benchmark which shall include a clear description of the input data to be
provided, and at least the elements set out in Section D of Annex I.

2.           The code of conduct shall
be signed by the administrator and the contributors and shall be legally
binding on all parties to it.

3.           The Commission shall be
empowered to adopt delegated acts in accordance with Article 37 concerning
measures to further specify the terms of the code of conduct in Section D of Annex
I for different types of benchmarks, and in order to take account of
developments in benchmarks and financial markets.

The Commission shall take into account the
different characteristics of benchmarks and contributors, notably in terms of
differences in input data and methodologies, the risks of input data being
manipulated and international convergence of supervisory practices in relation
to benchmarks.

Article 10
Regulated data

1.           When the input data contributed
to a benchmark is regulated data, Articles 7(1)(b), 8(1), 8(2) and Article 9 shall
not apply.

2.           The administrator shall
enter into an agreement with the contributor of the regulated data which
clearly identifies to the contributor the benchmarks that the administrator is determining
with the regulated data and shall ensure compliance with this Regulation.

Article 11 
 Governance and controls

1.           The following governance
and control requirements shall apply to a supervised contributor:

(a) 
The supervised contributor shall ensure that the
provision of input data is not affected by any existing or potential conflict
of interest and that, where any discretion is required, it is independently and
honestly exercised based on relevant information in accordance with the code of
conduct (‘Conflicts of interest’).

(b) 
The supervised contributor shall have a control
framework that ensures the integrity, accuracy and reliability of the input
data and that the input data is provided in accordance with the provisions of
this Regulation and the code of conduct (‘Adequate controls’).

2.           A supervised contributor
shall comply with the requirements concerning systems and controls set out in Section
E of Annex I.

3.           A supervised contributor
shall fully cooperate with the administrator and the relevant competent
authority in the auditing and supervision of the provision of a benchmark and
make available the information and records kept in accordance with Section E of
Annex 1.

4.           The Commission shall be
empowered to adopt delegated acts in accordance with Article 37 concerning
measures to further specify the requirements concerning systems and controls set
out in Section E of Annex I for different types of benchmarks.

The Commission shall take into account the
different characteristics of benchmarks and supervised contributors, notably in
terms of differences in input data provided and methodologies used, the risks
of manipulation of the input data and the nature of the activities carried out
by the supervisedcontributors, and the developments in benchmarks and financial
markets in light of international convergence of supervisory practices in
relation to benchmarks.

TITLE III 
SECTORAL REQUIREMENTS AND CRITICAL BENCHMARKS

Chapter
1 
Benchmark sectors

Article 12 
Specific requirements for different types of benchmarks and sectors

1.           In addition to the
requirements of the Title II, the specific requirements set out in Annex II
shall apply to inter-bank interest rate benchmarks.

2.           In addition to the
requirements of the Title II, the specific requirements set out in Annex III shall
apply to commodity benchmarks.

3.           The Commission shall be
empowered to adopt delegated acts in accordance with Article 39 to specify, or
adjust, in light of market and technological developments and international
developments, the following elements of Annexes II and III:

(a) 
The period of time after which input data shall
be published (Annex II point 6)

(b) 
The processes for election and nomination and
responsibilities of the oversight committee (Annex II points 8, 9 and 10)

(c) 
The frequency of audits (Annex II point 12)

(d) 
The processes by which input data is provided to
be specified in the code of conduct (Annex II point 13)

(e) 
The systems and controls of a contributor (Annex
II point 16)

(f) 
The records which are to be kept by a
contributor and the medium in which they are to be kept(Annex II point 17 and
18

(g) 
The findings to be reported to management by the
compliance function of the contributor (Annex II point 19)

(h) 
The frequency of internal reviews of input data
and procedures (Annex II point 20)

(i) 
The frequency of external audits of the
contributor’s input data (Annex II point 21)

(j) 
The criteria and procedures for developing the
benchmark (Annex III point 1 a)

(k) 
The elements to be included in the methodology
and the description of the methodology (Annex III point 1 and 2)

(l) 
The requirements of the administrator regarding the
quality and the integrity of the benchmark calculation and the content of the
description attached to each calculation (Annex III point 5 and 6)

Chapter
2 
Critical benchmarks

Article 13 
Critical benchmarks

1.           The Commission shall adopt
a list of benchmarks located within the Union which are critical benchmarks, in
accordance with the definition laid down in Article 3(21).

Those implementing acts shall be adopted in
accordance with the examination procedure referred to in Article 38(2).

2.           Within 5 working days from
the date of application of the decision including a critical benchmark in the
list referred to in paragraph 1of this Article, the administrator of that
critical benchmark shall notify the code of conduct to the relevant competent
authority. The relevant competent authority shall verify within 30 days whether
the content of the code of conduct complies with the requirements of this
Regulation. In case the relevant competent authority finds elements which do
not comply with the requirements of this Regulation, it shall inform the
administrator. The administrator shall adjust the code of conduct to ensure
that it complies with the requirements of this Regulation within 30 days of
such a request.

Article 14
Mandatory contribution

1.           Where contributors,
comprising at least 20% of the contributors to a critical benchmark have ceased
contributing, or there are sufficient indications that at least 20% of the
contributors are likely to cease contributing, in any year, the competent
authority of the administrator of a critical benchmark shall have the power to:

(a) 
require supervised entities, selected in
accordance with paragraphs 2, to contribute input data to the administrator in
accordance with the methodology, code of conduct or other rules;

(b) 
determine the form in which, and the time by
which, any input data is to be contributed;

(c) 
change the code of conduct, methodology or other
rules of the critical benchmark.

2.           For a critical benchmark,
the supervised entities that are required to contribute in accordance with
paragraph 1 shall be determined by the competent authority of the administrator
on the basis of the following criteria:

(a) 
the size of the supervised entity’s actual and
potential participation in the market that the benchmark seeks to measure;

(b) 
the supervised entity’s expertise and ability to
provide input data of the necessary quality.

3.           The competent authority of
a supervised contributor that has been required to contribute to a benchmark
through measures taken in accordance with points (a) and (b) of paragraph 1 shall
assist the competent authority of the administrator in the enforcement of such
measures.

4.           The competent authority of
the administrator shall review each measure adopted under paragraph 1 one year following
its adoption. It shall revoke it if:

(a) 
judges that the contributors are likely to
continue contributing input data for at least 1 year if the power were revoked
which shall be evidenced by at least:

(1) 
a written commitment by the contributors to the
administrator and the competent authority to continue contributing input data
to the critical benchmark for at least one year if the mandatory contribution
power were revoked;

(2) 
a written report by the administrator to the
competent authority providing evidence for its assessment that the critical
benchmark’s continued viability can be assured once mandatory participation has
been revoked.

(b) 
judges that an acceptable substitute benchmark
is available and users of the critical benchmark can switch to this substitute
at minimal costs which shall be evidenced by at least a written report by the
administrator detailing the means of transition to a substitute benchmark and
the ability and costs to users of transferring to this benchmark.

5.           The administrator shall
notify the relevant competent authority in the event that any contributors
breach the requirements of paragraph 1 of this Article as soon as is
technically possible.

TITLE IV
TRANSPARENCY AND CONSUMER PROTECTION

Article 15
Benchmark statement

1.           An administrator shall publish
a benchmark statement for each benchmark which:

(a) 
clearly and unambiguously defines the market or
economic reality measured by the benchmark and the circumstances in which such
measurement may become unreliable;

(b) 
describes or lists the purposes for which it is
appropriate to use the benchmark and the circumstances in which it may cease to
be fit for such purposes;

(c) 
lays down technical specifications that clearly
and unambiguously identify the elements of the calculation in relation to which
discretion may be exercised, the criteria applicable to the exercise of such
discretion and the persons by whom discretion is exercised, and how such discretion
may be subsequently evaluated;

(d) 
provides notice of the possibility that factors,
including external factors beyond the control of the administrator, may
necessitate changes to, or the cessation, of the benchmark; and

(e) 
advises that any financial contracts or other
financial instruments that reference the benchmark should be able to withstand,
or otherwise address the possibility of changes to, or cessation of, the
benchmark.

2.           In order to ensure
compliance with paragraph 1, an administrator shall comply with the detailed
requirements set out in Section F of Annex 1.

Article 16
Transparency of input data

1.           An administrator shall
publish the input data used to determine the benchmark immediately after
publication of the benchmark except where publication would have serious
adverse consequences for the contributors or adversely affect the reliability
or integrity of the benchmark. In such cases publication may be delayed for a
period that significantly diminishes these consequences. Any personal data
included in input data shall not be published.

2.           The Commission shall be
empowered to adopt delegated acts in accordance with Article 37 concerning measures
to further specify the information to be disclosed in accordance with paragraph
1, the means of publication as well as the circumstances when publication may
be delayed and the means by which it shall be transmitted.

Article 17
Cessation of a benchmark

1.           An administrator shall
publish a procedure concerning the actions to be taken by the administrator in
the event of changes to or the cessation of a benchmark.

2.           Supervised entities that
issue or own financial instruments or are party to financial contracts that
reference a benchmark shall produce robust written plans setting out the
actions that they would take in the event that a benchmark materially changes
or ceases to be produced. The supervised entities shall provide the relevant
competent authority with these plans on request.

Article 18
Assessment of suitability

1.           Where a supervised entity
intends to enter into a financial contract with a consumer, that supervised entity
shall first obtain the necessary information regarding the consumer’s knowledge
and experience with respect to the benchmark, his financial situation and his
objectives in respect of that financial contract, and the benchmark statement
published in accordance with Article 15 and shall assess whether referencing
the financial contract to that benchmark is suitable for him.

2.           Where the supervised entity
considers, on the basis of the assessment under paragraph 1, that the benchmark
is not suitable for the consumer, the supervised entity shall warn the consumer
in writing with reasons.

TITLE V 
USE OF BENCHMARKS PROVIDED BY AUTHORISED ADMINISTRATORS OR BY ADMINISTRATORS
FROM THIRD COUNTRIES

Article 19
Use of robust benchmarks

A supervised entity may use a benchmark in
the Union as a reference in a financial instrument or financial contract or to
measure the performance of an investment fund if it is provided by an
administrator authorised in accordance with Article 23 or an administrator located
in a third country that is registered in accordance with Article 21

Article 20
Equivalence

1.           Benchmarks provided by an
administrator established in a third country may be used by supervised entities
in the Union provided that the following conditions are complied with:

(a) 
the Commission has adopted an equivalence
decision in accordance with paragraph 2, recognising the legal framework and
supervisory practice of that third country as equivalent to the requirements of
this Regulation;

(b) 
the administrator is authorised or registered
in, and is subject to supervision in, that third country;

(c) 
the administrator has notified ESMA of its consent
that its actual or prospective benchmarks may be used by supervised entities in
the Union, the list of the benchmarks which may be used in the Union and the
competent authority responsible for its supervision in the third country;

(d) 
the administrator is duly registered under
Article 21; and

(e) 
the cooperation arrangements referred to in
paragraph 3 of this Article are operational.

2.           The Commission may adopt a
decision stating that the legal framework and supervisory practice of a third country
ensures that:

(a) 
administrators authorised or registered in that
third country comply with binding requirements which are equivalent to the
requirements resulting from this Regulation, in particular taking into account
if the legal framework and supervisory practice of a third country ensures
compliance with the IOSCO principles on financial benchmarks published on 17
July 2013; and

(b) 
the binding requirements are subject to
effective supervision and enforcement on an on-going basis in that third
country.

Those implementing acts shall be adopted in
accordance with the examination procedure referred to in Article 38(2).

3.           ESMA shall establish
cooperation arrangements with the competent authorities of third countries
whose legal framework and supervisory practice have been recognised as
equivalent in accordance with paragraph 2. Such arrangements shall specify at
least:

(a) 
the mechanism for the exchange of information
between ESMA and the competent authorities of third countries concerned,
including access to all information regarding the administrator authorised in
that third country that is requested by ESMA;

(b) 
the mechanism for prompt notification to ESMA
where a third country competent authority deems that the administrator
authorised in that third country that it is supervising is in breach of the
conditions of its authorisation or other national legislation;

(c) 
the procedures concerning the coordination of
supervisory activities including on-site inspections.

4.           ESMA shall develop draft
regulatory technical standards to determine the minimum content of the
cooperation arrangements referred to in paragraph 3 so as to ensure that the
competent authorities and ESMA are able to exercise all their supervisory
powers under this Regulation:

ESMA shall submit those draft regulatory
technical standards to the Commission by [XXX].

Power is delegated to the Commission to adopt
the regulatory technical standards referred to in the first subparagraph in
accordance with the procedure laid down in Articles 10 to 14 of Regulation (EU)
No 1095/2010.

Article 21
Registration

1.           ESMA shall register the
administrators that have notified it of their consent referred to in Article 20(1)(c).
The register shall be publicly accessible on the website of ESMA and shall
contain information on the benchmarks which the relevant administrators are
permitted to provide and the competent authority responsible for their
supervision in the third country.

2.           ESMA shall withdraw the
registration of an administrator referred to in paragraph 1 from the register referred
to in paragraph 1 when:

(a) 
ESMA has well-founded reasons, based on
documented evidence, to consider that the administrator is acting in a manner
which is clearly prejudicial to the interests of users of its benchmarks or the
orderly functioning of markets; or

(b) 
ESMA has well-founded reasons, based on
documented evidence, to consider that the administrator has seriously infringed
the national legislation or other provisions applicable to it in the third
country and on the basis of which the Commission has adopted the decision in
accordance with Article 20(2).

3.           ESMA shall take a decision
under paragraph 2 only if the following conditions are fulfilled:

(a) 
ESMA has referred the matter to the competent
authority of the third country and that competent authority has not taken the
appropriate measures needed to protect investors and the proper functioning of
the markets in the Union, or has failed to demonstrate that the administrator
concerned complies with the requirements applicable to it in the third country;

(b) 
ESMA has informed the competent authority of the
third country of its intention to withdraw the registration of the
administrator, at least 30 days before the withdrawal.

4.           ESMA shall inform the
other competent authorities of any measure adopted in accordance with paragraph
2 without delay and shall publish its decision on its website.

TITLE VI
AUTHORISATION AND SUPERVISION OF ADMINISTRATORS

Chapter
1
Authorisation

Article 22
Requirement for authorisation

1.           An administrator shall
apply for authorisation to provide benchmarks if it provides indices which are used
or intended to be used to reference financial instruments or financial contracts
or to measure the performance of an investment fund.

2.           An authorised
administrator shall comply at all times with the conditions for authorisation
and shall notify the competent authority of any material changes to the
conditions for initial authorisation.

Article 23
Application for authorisation

1.           The administrator shall
submit an application for authorisation to the competent authority of the Member
State in which the administrator is located.

2.           The application for
authorisation in accordance with paragraph 1 shall be made:

(a) 
within 30 working days of any agreement entered
into by a supervised entity to use an index provided by that administrator as a
reference to a financial instrument or financial contract or to measure the
performance of an investment fund;

(b) 
within 30 working days of the administrator
giving its consent in accordance with paragraph 2 of Article 25 to the
referencing of the index in the financial instrument referred to in paragraph 1
of Article 25.

3.           The applicant
administrator shall provide all information necessary to satisfy the competent
authority that the applicant administrator has established, at the time of
authorisation, all the necessary arrangements to meet the requirements laid
down in this Regulation.

4.           Within 15 working days of
receipt of the application, the relevant competent authority shall assess
whether the application is complete and shall notify the applicant accordingly.
If the application is incomplete, then the applicant shall submit the
additional information required by the relevant competent authority.

5.           Within 45 working days of
receipt of a complete application, the relevant competent authority shall, examine
the application and adopt a decision to authorise or refuse authorisation of
the applicant administrator. Within five working days of the adoption of a
decision whether to authorise or refuse authorisation, the competent authority
shall notify it to the administrator concerned. Where the competent authority
refuses to authorise the applicant administrator, it shall give reasons for its
decision.

6.           The competent authority
shall notify ESMA of any decision to authorise an applicant administrator or
refuse authorisation and ESMA shall publish a list of administrators authorised
in accordance with this Regulation. That list shall be updated within 7 working
days of any notification referred to in this paragraph.

7.           The Commission shall be
empowered to adopt delegated acts in accordance with Article 39 concerning
measures to further specify information to be provided in the application for
authorisation taking into account the principle of proportionality and the
costs to the administrators and competent authorities.

Article 24
Withdrawal or suspension of authorisation

1.           The competent authority
shall withdraw or suspend the authorisation of an administrator where the
administrator:

(a) 
expressly renounces the authorisation or has
provided no benchmarks for the preceding twelve months;

(b) 
has obtained the authorisation by making false
statements or by any other irregular means;

(c) 
no longer meets the conditions under which it
was authorised; or

(d) 
has seriously or repeatedly infringed the
provisions of this Regulation.

2.           The competent authority
shall notify ESMA of its decision within five working days.

Chapter
2

Notification
of benchmarks

Article 25
Notification to ESMA of use of an index in a financial instrument

1.           Whenever a competent
authority becomes aware that an index is being used as a reference to a
financial instrument, or that a request for admission to trading has been made
to a trading venue supervised by that competent authority in respect of a
financial instrument that references an index, that competent authority shall
notify ESMA within 10 working days.

2.           Within 10 working days of
any notification ESMA shall notify the relevant administrator of the benchmark
providing full details of its use and requesting the administrator to confirm
that it consents to this use of the benchmark within 10 working days.

3.           Without predjudice to
Article 30 [MIFIR], where the administrator does not confirm to ESMA its
consent within the time limit set out in paragraph 2, ESMA shall notify the
relevant competent authority which shall request that the trading venue
withdraw the listing of that financial instrument or refuse its admission to
trading within 10 working days.

4.           ESMA shall publish on its
website a list of all notifications under paragraphs 1, 2 and 3.

ESMA shall develop draft implementing technical
standards to determine the procedures and forms for exchange of information
referred to in paragraph 1 and 2.

ESMA shall submit the draft implementing
technical standards referred to in the first subparagraphs to the Commission by
[XXXX].

Power is conferred to the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with Article 15 of Regulation 1095/2010.

Chapter
3

Supervisory
cooperation

Article 26
Delegation of tasks between competent authorities

1.           In accordance with Article
28 of Regulation (EU) No 1095/2010 a competent authority may delegate its tasks
under this Regulation to the competent authority of another Member State.
Delegation of tasks shall not affect the responsibility of the delegating
competent authority and the competent authorities shall notify ESMA of any
proposed delegation 60 days prior to such delegation taking effect.

2.           A competent authority may
delegate some of its tasks under this Regulation to ESMA subject to the
agreement of ESMA. Delegation of tasks shall not affect the responsibility of
the delegating competent authority.

3.           ESMA shall notify the
Member States of a proposed delegation within seven days. ESMA shall publish
details of any agreed delegation within five working days of notification.

Article 27
Disclosure of information from another Member State

1.           The competent authority
may disclose information received from another competent authority only if:

(a) 
it has obtained the written agreement of that
competent authority and the information is disclosed only for the purposes for
which that competent authority gave its agreement; or

(b) 
where such disclosure is necessary for legal
proceedings.

Article 28
Cooperation in case of a request with regard to on-site inspections or
investigations

1.           The relevant competent
authority may request the assistance of another competent authority with regard
to on-site inspections or investigations.

2.           The competent authority
making the request referred to in paragraph 1 shall inform ESMA thereof. In the
event of an investigation or inspection with cross-border effect, the competent
authorities may request ESMA to coordinate the on-site inspection or investigation.

3.           Where a competent
authority receives a request from another competent authority to carry out an
on-site inspection or an investigation, it may:

(a) 
carry out the on-site inspection or
investigation itself;

(b) 
allow the competent authority which submitted
the request to participate in an on-site inspection or investigation;

(c) 
appoint auditors or experts to carry out the
on-site inspection or investigation.

Chapter
4
Role of Competent Authorities

Article 29
Competent authorities

1.           For administrators and
supervised contributors, each Member State shall designate the relevant
competent authority responsible for carrying out the duties resulting from this
Regulation and shall inform the Commission and ESMA thereof.

2.           Where a Member State
designates more than one competent authority, it shall clearly determine the
respective roles and shall designate a single authority to be responsible for
coordinating cooperation and the exchange of information with the Commission,
ESMA and other Member States’ competent authorities.

3.           ESMA shall publish on its
website a list of the competent authorities designated in accordance with paragraph
1.

Article 30
Powers of competent authorities

1.           In order to fulfil their
duties under this Regulation, competent authorities shall have in conformity
with national law, at least the following supervisory and investigatory powers:

(a) 
have access to any document and other data in
any form, and to receive or take a copy thereof;

(b) 
require or demand information from any person including
those who are successively involved in the transmission of orders or conduct of
the operations concerned, as well as their principals, and if necessary, to
summon and question any such person with a view to obtain information;

(c) 
in relation to benchmarks whose input data is commodities,
request information from market participants on related spot markets according
to standardized formats, obtain reports on transactions, and have direct access
to traders' systems;

(d) 
carry out on-site inspections or investigations,
at sites other than the private residences of natural persons

(e) 
enter premises of natural and legal persons in
order to seize documents and other data in any form, where a reasonable
suspicion exists that documents and other data related to the subject-matter of
the inspection or investigation may be relevant to prove a breach of this
Regulation. Where prior authorisation is needed from the judicial authority of
the Member State concerned, in accordance with national law, such power shall
only be used after having obtained that prior authorisation;

(f) 
require existing recordings of telephone
conversations, electronic communications or other data traffic records held by supervised
entities;

(g) 
request the freezing or sequestration of assets
or both;

(h) 
suspend trading of the financial instrument concerned
that references a benchmark;

(i) 
require temporary cessation of any practice that
the competent authority considers contrary to this Regulation;

(j) 
impose a temporary prohibition on the exercise
of professional activity;

(k) 
take all necessary measures to ensure that the
public is correctly informed about the provision of a benchmark, including by
requiring a person who has published or disseminated the benchmark to publish a
corrective statement about past contributions to or figures of the benchmark.

2.           The competent authorities
shall exercise their functions and powers, referred to in paragraph 1, in any
of the following ways:

(a) 
directly;

(b) 
in collaboration with other authorities or with
market undertakings;

(c) 
under their responsibility by delegation to such
authorities or to market undertakings;

(d) 
by application to the competent judicial
authorities.

For the exercise of those powers, competent
authorities shall have in place adequate and effective safeguards in regard to the
right of defence and fundamental rights.

3.           Member States shall ensure
that appropriate measures are in place so that competent authorities have all
the supervisory and investigatory powers that are necessary to fulfil their
duties.

4.           A person shall not be
considered in breach of any restriction on disclosure of information posed by a
contract or by any legislative, regulatory or administrative provision when
making information available in accordance with paragraph 2.

Article 31
Administrative measures and sanctions

1.           Without prejudice to the
supervisory powers of competent authorities in accordance with Article 34,
Member States shall, in conformity with national law, provide for competent
authorities to have the power to take appropriate administrative measures and
impose administrative measures and sanctions at least for:

(a) 
the breaches of Articles 5(1), 6, 7(1), 8, 9,
10, 11, 14, 15, 16, 17, 18, 19, 22 and 23 of this Regulation; and

(b) 
failure to cooperate or comply in an
investigation or with an inspection or request covered by Article 30.

2.           In case of a breach
referred to in paragraph 1, Member States shall, in conformity with national
law, confer on competent authorities the power apply at least the following
administrative measures and sanctions:

(a) 
an order requiring the person responsible for
the breach to cease the conduct and to desist from repeating that conduct;

(b) 
the disgorgement of the profits gained or losses
avoided because of the breach where those can be determined;

(c) 
a public warning which indicates the person
responsible and the nature of the breach;

(d) 
withdrawal or suspension of the authorisation of
a regulated entity;

(e) 
a temporary ban prohibiting any natural person,
who is held responsible for such breach, from exercising management functions
in administrators or contributors;

(f) 
the imposition of maximum administrative
pecuniary sanctions of at least three times the amount of the profits gained or
losses avoided because of the breach where those can be determined; or

(1) 
in respect of a natural person maximum
administrative pecuniary sanctions of at least:

(i) for breaches of Articles 5(1), 6, 7(1), 8,
9, 10, 11, 14, 15, 16, 17, 18, 19, 22 and 23, EUR 500,000 or in the Member
States where the Euro is not the official currency, the corresponding value in
the national currency on the date of entry to force of this Regulation; or

(ii) for breaches of points (b) or (c) of Articles
7(1) EUR 100,000 or in the Member States where the Euro is not the official
currency, the corresponding value in the national currency on the date of entry
to force of this Regulation;

(2) 
in respect of a legal person up to maximum
administrative pecuniary sanctions of at least:

(i) for breaches of Articles 5(1), 6, 7(1), 8,
9, 10, 11, 14, 15, 16, 17, 18, 19, 22 and 23, whichever is the higher of EUR
1,000,000 or 10 % of its total annual turnover according to the last available
accounts approved by the management body. Where the legal person is a parent
undertaking or a subsidiary of a parent undertaking which has to prepare
consolidated financial accounts according to Directive 2013/34/EU, the relevant
total annual turnover shall be the total annual turnover or the corresponding
type of income according to Directive 86/635/EC for banks and Directive
91/674/EC for insurance companies according to the last available consolidated
accounts approved by the management body of the ultimate parent undertaking or
if the person is an association, 10% of the aggregate turnovers of its members;
or

(ii) for breaches of points (b) and (c) of Articles
6(1), whichever is the higher of EUR250,000 or 2 % of its total annual turnover
according to the last available accounts approved by the management body; where
the legal person is a parent undertaking or a subsidiary of a parent
undertaking which has to prepare consolidated financial accounts according to Directive
2013/34/EU, the relevant total annual turnover shall be the total annual
turnover or the corresponding type of income according to Directive 86/635/EC
for banks and Directive 91/674/EC for insurance companies according to the last
available consolidated accounts approved by the management body of the ultimate
parent undertaking or if the person is an association, 10% of the aggregate
turnovers of its members.

3.           By [12 months after entry
into force of this Regulation] Member States shall notify the rules regarding
paragraphs 1 and 2 to the Commission and ESMA. They shall notify the Commission
and ESMA without delay of any subsequent amendment thereto.

4.           Member States may provide
competent authorities under national law to have other sanctioning powers in
addition to those referred to in paragraph 1 and may provide for higher levels
of sanctions than those established in that paragraph.

Article 32
Exercise of supervisory and sanctioning powers

1.           Member States shall ensure
that, when determining the type and level of administrative sanctions,
competent authorities take into account all relevant circumstances, including where
appropriate:

(a) 
the gravity and duration of the breach;

(b) 
the degree of responsibility of the responsible
person;

(c) 
the financial strength of the responsible
person, as indicated, in particular, by the total turnover of the responsible
legal person or the annual income of the responsible natural person;

(d) 
the level of the profits gained or losses
avoided by the responsible person, insofar as they can be determined;

(e) 
the level of cooperation of the responsible
person with the competent authority, without prejudice to the need to ensure
disgorgement of profits gained or losses avoided by that person;

(f) 
previous breaches by the person concerned;

(g) 
measures taken, after the breach, by a
responsible person to prevent the repetition of the breach.

2.           In the exercise of their
sanctioning powers under circumstances defined in Article 31 competent
authorities shall cooperate closely to ensure that the supervisory and
investigative powers and administrative sanctions produce the desired results
of this Regulation. They shall also coordinate their action in order to avoid
possible duplication and overlap when applying supervisory and investigative
powers and administrative sanctions and fines to cross border cases.

Article 33
Publication of decisions

1.           A decision imposing an
administrative sanction or measure for breach of this Regulation shall be
published by competent authorities on their official website immediately after
the person sanctioned is informed of that decision. The publication shall
include at least information on the type and nature of the breach and the
identity of the persons responsible. This obligation does not apply to
decisions imposing measures that are of an investigatory nature.

2.           Where the publication of
the identity of the legal persons or personal data of natural persons is
considered by the competent authority to be disproportionate following a
case-by-case assessment conducted on the proportionality of the publication of
such data, or where publication jeopardises the stability of financial markets
or an on-going investigation, competent authorities shall either:

(a) 
delay the publication of the decision to impose
a sanction or a measure until the moment where the reasons for non-publication
cease to exist;

(b) 
publish the decision to impose a sanction or a
measure on an anonymous basis in a manner which is in conformity with national
law, if such anonymous publication ensures an effective protection of the
personal data concerned; In the case of a decision to publish a sanction or
measure on an anonymous basis the publication of the relevant data may be
postponed for a reasonable period of time if it is foreseen that within that
period the reasons for anonymous publication shall cease to exist;

(c) 
not publish the decision to impose a sanction or
measure at all in the event that the options set out in (a) and (b) above are
considered insufficient to ensure:

(1) 
that the stability of financial markets would
not be put in jeopardy; or

(2) 
the proportionality of the publication of such
decisions with regard to measures which are deemed to be of a minor nature.

3.           Where the decision to
impose a sanction or measure is subject to an appeal before the relevant
judicial or other authorities, competent authorities shall also publish, immediately,
on their official website such information and any subsequent information on
the outcome of such appeal. Moreover, any decision annulling a previous
decision to impose a sanction or a measure shall also be published.

4.           Competent authorities
shall ensure that any publication, in accordance with this Article, shall
remain on their official website for a period of at least five years after its
publication. Personal data contained in the publication shall only be kept on
the official website of the competent authority for the period which is
necessary in accordance with the applicable data protection rules.

Article 34
Colleges of competent authorities

1.           Within 30 working days from
the entry into force of the decision referred to in Article 13(1) determining a
benchmark as critical benchmark, the competent authority shall establish a
college of competent authorities.

2.           The college shall comprise
the competent authority of the administrator, ESMA, and the competent
authorities of the contributors.

3.           Competent authorities of
other Member States shall have the right to be member of the college where, if
that critical benchmark were to cease to be provided, it would have a
significant adverse impact on the financial stability, or the orderly
functioning of markets, or consumers, or the real economy of those Member States

Where a competent authority intends to become a
member of a college pursuant to the first subparagraph, it shall submit a
request to the competent authority of the administrator containing evidence
that the requirements of that provision are fulfilled. The relevant competent
authority of the administrator shall consider the request and notify the
requesting authority within 20 working days of receipt of the request whether
or not it considers those requirements to be fulfilled. Where it considers
those requirements not to be fulfilled, the requesting authority may refer the
matter to ESMA in accordance with paragraph 10.

4.           ESMA shall contribute to
promoting and monitoring the efficient, effective and consistent functioning of
colleges of supervisors referred to in this Article in accordance with Article
21 of Regulation (EU) No 1095/2010. To that end, ESMA shall participate as
appropriate and shall be considered to be a competent authority for that
purpose.

5.           The competent authority of
the administrator shall chair the meetings of the college, coordinate the
actions of the college and ensure efficient exchange of information among
members of the college.

6.           The competent authority of
the administrator shall establish written arrangements within the framework of
the college regarding the following matters:

(a) 
information to be exchanged between competent
authorities;

(b) 
the decision-making process between the
competent authorities;

(c) 
cases in which the competent authorities must
consult each other;

(d) 
the assistance to be provided under Article
14(3) in the enforcement of the measures referred to in Article14(1) (a) and
(b).

Where the administrator provides more than one
benchmark, the competent authority of the administrator may establish a single
college in respect of all the benchmarks provided by that administrator.

7.           In the absence of
agreement concerning the arrangements under paragraph 6, any members of the
college, other than ESMA, may refer the matter to ESMA. The competent authority
of the administrator shall give due consideration to any advice provided by
ESMA concerning the written coordination arrangements before agreeing their
final text. The written coordination arrangements shall be set out in a single
document containing full reasons for any significant deviation from the advice
of ESMA. The competent authority of the administrator shall transmit the
written coordination arrangements to the members of the college and to ESMA.

8.           Before taking any measures
referred to Article 14, 23, 24 and 31 the competent authority of the
administrator shall consult the members of the college. The members of the
college shall do everything reasonable within their power to reach an
agreement.

Any decision of the competent authority of the
administrator to take such measures shall take account of the impact on the
other competent authorities and their respective Member States, in particular
the potential impact on the stability of the financial system in any other
Member States concerned.

9.           In the absence of
agreement between the members of the college on whether to take any measures
referred to in paragraph 8, within 15 working days after the matter was
notified to the college, the competent authority of the administrator may adopt
a decision. Any deviation of that decision from the opinions expressed by the
other members of the college and, where appropriate, ESMA shall be fully
reasoned. The competent authority of the administrator shall notify its decision,
without undue delay, to the college and ESMA.

10.         Competent authorities other
than ESMA may refer to ESMA any of the following situations:

(a) 
where a competent authority has not communicated
essential information;

(b) 
where, following a request made under paragraph
3, the competent authority of the administrator has notified the requesting
authority that the requirements of that paragraph are not fulfilled or where it
has not acted upon such request within a reasonable time;

(c) 
where the competent authorities have failed to
agree the matters set out in paragraph 6;

(d) 
where the benchmark is a critical benchmark, where
there is a disagreement with the measure taken in accordance with Articles
14, 23, 24 and 31.

Without prejudice to Article 258 TFEU, ESMA may
act in accordance with the powers conferred on it under Article 19 of
Regulation (EU) No 1095/2010. ESMA may also assist the competent authorities in
developing consistent cooperation practices on its own initiative in accordance
with the second subparagraph of Article 19(1) of that Regulation.

Article 35
Cooperation with ESMA

1.           The competent authorities
shall cooperate with ESMA for the purposes of this Regulation, in accordance
with Regulation (EU) No 1095/2010.

2.           The competent authorities
shall, without delay, provide ESMA with all information necessary to carry out
its duties, in accordance with Article 35 of Regulation (EU) No 1095/2010.

3.           ESMA shall develop draft
implementing technical standards to determine the procedures and forms for
exchange of information as referred to in paragraph 2.

ESMA shall submit the draft implementing
technical standards referred to in the first subparagraph to the Commission by
[XXXX].

Power is conferred to the Commission to adopt
the implementing technical standards referred to in the first subparagraph in
accordance with Article 15 of Regulation 1095/2010.

Article 36
Professional secrecy

1.           Any confidential
information received, exchanged or transmitted pursuant to this Regulation
shall be subject to the conditions of professional secrecy laid down in
paragraph 2.

2.           The obligation of
professional secrecy applies to all persons who work or who have worked for the
competent authority or for any authority or market undertaking or natural or
legal person to whom the competent authority has delegated its powers,
including auditors and experts contracted by the competent authority.

3.           Information covered by
professional secrecy may not be disclosed to any other person or authority except
except by virtue of provisions laid down by law.

4.           All the information
exchanged between the competent authorities under this Regulation that concerns
business or operational conditions and other economic or personal affairs shall
be considered confidential and shall be subject to the requirements of
professional secrecy, except where the competent authority states at the time
of communication that such information may be disclosed or such disclosure is
necessary for legal proceedings.

TITLE VII
DELEGATED AND IMPLEMENTING ACTS

Article 37
Exercise of the delegation

1.           The power to adopt
delegated acts is conferred on the Commission subject to the conditions laid
down in this Article.

2.           The power to adopt
delegated acts referred to in Articles 3(2), 5(3), 7(3), 9(3), 11(4), 12(3),
16(2), and 23(7) shall be conferred on the Commission for an indeterminate
period of time from [date of entry into force of this Regulation].

3.           The delegation of power
referred to in Articles 3(2), 5(3), 7(3), 9(3), 11(4), 12(3), 16(2), and 23(7) may
be revoked at any time by the European Parliament or by the Council. A decision
to revoke shall put an end to the delegation of power specified in that
decision. It shall take effect on the day following the publication of the
decision in the Official Journal of the European Union or on a later date
specified therein. It shall not affect the validity of any delegated acts
already in force.

4.           As soon as it adopts a
delegated act, the Commission shall notify it simultaneously to the European
Parliament and to the Council.

5.           A delegated act adopted
pursuant to Articles 3(2), 5(3), 7(3), 9(3), 11(4), 12(3), 16(2), and 23(7) shall
enter into force only if no objection has been expressed by either the European
Parliament or the Council within a period of two months of notification of that
act to the European Parliament and the Council or if, before the expiry of that
period, the European Parliament and the Council have both informed the
Commission that they will not object. That period shall be extended by two
months at the initiative of the European Parliament or of the Council.

Article 38
Committee procedure

1.           The Commission shall be
assisted by the European Securities Committee. That committee shall be a
committee within the meaning of Regulation (EU) No 182/2011.

2.           Where reference is made to
this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply, having
regard to the provisions of Article 8 thereof.

TITLE VIII
Transitional and Final Provisions

Article 39
Transitional provisions

1.           An administrator providing
a benchmark on [the date of entry into force of this Regulation] shall apply
for authorisation under Article 23 within [24 months after the date of
application].

2.           An administrator that
submitted an application for authorisation in accordance with paragraph 1 may
continue to produce an existing benchmark unless and until such authorisation
is refused.

3.           Where an existing
benchmark does not meet the requirements of this Regulation, but changing that
benchmark to conform with the requirements of this Regulation would result in a
force majeure event, frustrate or otherwise breach the terms of any financial contract
or financial instrument which references that benchmark, paragraph 4 of this
Article shall apply.

4.           The use of a benchmark
shall be permitted by the relevant competent authority of the Member State
where the administrator is located until such time as the benchmark references
financial instruments and financial contracts worth no more than 5% by value of
the financial instruments and financial contracts that referenced this
benchmark at the time of entry into force of this Regulation. No financial
instruments or financial contracts shall reference such an existing benchmark
after the entry into application of this Regulation.

Article 40
Review

By 1 July 2018, the Commission shall review and
report to the European Parliament and the Council on this Regulation and in
particular:

(a) 
the functioning and effectiveness of the critical
benchmark and mandatory participation regime under Articles 13 and 14 and the definition
of a critical benchmark in Article 3;

(b) 
the effectiveness of the supervisory regime in
Title VI and the colleges under Article 34 and the appropriateness of
supervision of certain benchmarks by a Union body; and

(c) 
the value of the suitability requirement under
Article 18.

Article 41
 Entry into force

This Regulation shall enter into force on the
day following that of its publication in the Official Journal of the
European Union.

It shall apply from [12 months after entry into
force].

However, Article 13(1) and 34 shall apply from
[6 months after entry into force].

This Regulation shall be binding
in its entirety and directly applicable in all Member States.

Done at Brussels,

For the European Parliament                       For
the Council

The President                                                 The
President

ANNEX I

Section A Governance and Control
Requirements to ensure compliance with Article 5(1)

I. Governance and conflicts of interest requirements
to ensure compliance with Article 5(1)(a)

1.           The provision of a
benchmark shall be operationally and functionally separated from any part of
the administrator’s business that may create an actual or potential conflict of
interest. If these conflicts cannot be managed, the benchmark operator shall
cease any activities or relationships that create these conflicts or cease producing
the benchmark.

2.           An administrator shall
publish, or disclose all existing or potential conflicts of interest to the
contributors and users of the benchmark and the relevant competent authority,
including conflicts of interest arising from the ownership or control of the
administrator.

3.           An administrator shall establish
adequate policies and procedures for the identification, disclosure, management
or mitigation and avoidance of conflicts of interest in order to protect the
integrity and independence of benchmark determinations. These should be
reviewed regularly and updated. The policies and procedures should take into
account and address the level of conflicts of interest, the degree of
discretion exercised in the benchmark process and the risks that the benchmark
poses, and shall ensure:

(a) 
the confidentiality of information contributed to
or produced by the administrator, subject to the disclosure and transparency obligations
under this Regulation; and

(b) 
shall specifically mitigate conflicts due to the
administrator’s ownership or control, or due to other interests in its group or
as a result of other persons that may exercise influence or control over the
administrator in relation to setting the benchmark.

4.           An administrator shall
ensure employees and any other natural persons whose services are placed at its
disposal or under its control and who are directly involved in the provision of
a benchmark:

(a) 
have the necessary skills, knowledge and
experience for the duties assigned and are subject to effective management and
supervision;

(b) 
are not subject to undue influence or conflicts
of interest and that the compensation and performance evaluation of these
persons do not create conflicts of interest or otherwise impinge on the
integrity of the benchmark process;

(c) 
their interests and business connections shall
not compromise the administrator’s functions;

(d) 
shall be prohibited from contributing to a
benchmark determination by way of engaging in bids, offers and trades on a
personal basis or on behalf of market participants; and

(e) 
are subject to effective procedures to control
the exchange of information with other employees, any other involved in
activities that may create a risk of conflicts of interest or where that information
may affect the benchmark.

5.           An administrator shall establish
specific internal control procedures to ensure the integrity and reliability of
the employee or person determining the benchmark, including at least internal
sign-off by management before the dissemination of the benchmark.

6.           Points 7 and 8 of this section
apply where input data is contributed from front office function which means
any department, division, group, or personnel of contributors or any of its
affiliates that performs any pricing trading, sales, marketing, advertising,
solicitation, structuring, or brokerage activities.

7.           Where Administrators
receive input data from employees of a front office function, the Administrator
shall obtain data from other sources that can corroborate that input data.

8.           The Administrator shall
not accept input data from front office functions unless there are adequate
internal oversight and verification procedures for front office function data that
meet the following requirements:

(a) 
There is validation of input before it is used in
the determination of a benchmark including procedures for multiple reviews by
senior staff to check inputs and internal sign off procedures by management for
submitting inputs;

(b) 
There is physical separation of employees in the
front office function and reporting lines;

(c) 
Full consideration of conflict management
measures to identify, disclose, manage, mitigate and avoid existing or
potential incentives to manipulate or otherwise influence data inputs,
including through remuneration policies and conflicts of interest between the
contribution of input data activities and any other business of the Contributor
or of any of its affiliates or any of their respective clients or customers.

II. Oversight requirements to ensure
compliance with Article 5(1)(b)

9.           An administrator shall establish
and maintain a permanent and effective oversight function which operates
independently and which has some, or all, of the following responsibilities, which
shall be adjusted for the complexity, use and vulnerability of the benchmark:

(a) 
reviewing the benchmark’s definition and
methodology;

(b) 
overseeing any changes to the benchmark
methodology and authorising the administrator to undertake a consultation on
such changes;

(c) 
overseeing the administrator’s control framework
and the code of conduct and the management and operation of the benchmark;

(d) 
reviewing and approving procedures for cessation
of the benchmark, including any consultation about a cessation;

(e) 
overseeing any third party involved in the
benchmark provision, including calculation or dissemination agents;

(f) 
assessing internal and external audits or
reviews, and monitoring the implementation of identified actions;

(g) 
monitoring the input data and contributors and the
actions of the administrator in challenging or validating contributions of
input data;

(h) 
taking effective measures in respect of any breaches
of the code of conduct; and

(i) 
reporting to the relevant competent authorities
any misconduct by contributors or administrators of which the oversight
function becomes aware, and any anomalous or suspicious input data.

10.         The oversight function
shall be one of the following:

(a) 
where the administrator is owned or controlled
by contributors or users, a separate board or committee, whose composition
ensures its independence and the absence of conflicts of interest. Where the
administrator is owned or controlled by contributors, a majority of the
committee should not be contributors. Where the administrator is owned or
controlled by users, a majority of the committee should not be users;

(b) 
where the administrator is not owned or
controlled by its contributors or users, an internal board or committee. The
members of the internal board or committee shall not be involved in the
provision of any benchmark they oversee;

(c) 
where the administrator is able to demonstrate
that in view of the nature, scale and complexity of its provision of the
benchmark, and the risk and impact of the benchmark, the requirements under
points a and b are not proportionate, a natural person may provide the function
of oversight officer. The oversight officer must not be involved in the
provision of any benchmark they oversee.

11.         The oversight function may exercise
oversight of more than one benchmark provided by an administrator provided that
it otherwise complies with the other requirements of this section.

III. Control requirements to ensure compliance with Article 5(1)(c)

12.         An administrator shall ensure
that there is an appropriate control framework for the provision of the benchmark.
The control framework should be proportionate to the level of conflicts
identified, the extent of discretion in the benchmark process and the nature of
benchmark input data, and include:

(a) 
the management of operational risk;

(b) 
adequate and effective business continuity and
disaster recovery plans.

13.         Where input data is not
transaction data, the administrator shall:

(a) 
establish measures to ensure that that contributors
comply with the code of conduct and the applicable standards for the input data;

(b) 
establish measures to monitor input data, including
monitoring the input data before publication of the benchmark and validation of
input data after publication to identify errors and anomalies.

14.         The control framework shall
be documented, reviewed and updated as appropriate and, upon request, made available
to users and the relevant competent authority.

IV. Accountability requirements to
ensure compliance with Article 5(1)(d)

15.         An administrator shall
appoint an internal function, with the necessary capability to review and
report on the administrator’s adherence to the benchmark methodology and this
Regulation.

16.         For critical benchmarks,
the administrator shall appoint an independent external auditor to review and
report on the administrator’s adherence to the benchmark methodology and this
Regulation if the size and complexity of the administrator’s benchmark
operations poses a significant risk to financial stability.

17.         Upon the request of the
relevant competent authority or any user of the benchmark the administrator
shall provide or publish details of the reviews in point 15 or audits under point
16.

18.         An administrator shall keep
records of:

(a) 
all input data;

(b) 
the use of this input data to determine the
benchmark and the methodology utilized;

(c) 
any exercise of judgment or discretion by the
administrator in the benchmark determination, including the full reasoning for
the judgement or discretion, records of the disregard of any input data, in
particular where it conformed to the requirements of the benchmark methodology,
and the rationale for its disregard;

(d) 
the submitters and the natural persons employed
by the administrators for determining the benchmarks;

(e) 
all documents relating to any complaint,
including those submitted by the complainant as well as the administrator’s
records; and

(f) 
the recording of telephone conversations or
electronic communications between any person employed by the administrator and
the contributors in respect of the benchmark.

19.         The administrator shall
keep the records set out in point 1 for at least five years in such a form that
it is possible to replicate and fully understand the benchmark calculations and
enable an audit or evaluation of the input data, calculations, judgements and
discretion. Records of telephone conversation or electronic communications
recorded in accordance with point 18(f) shall be provided to the persons
involved in the conversation or communication upon request and shall be kept
for a period of three years.

20.         The administrator shall
establish and publish procedures for the communication, management and timely
resolution of complaints related to the benchmark by a person, or persons, who
are independent of any persons connected to the complaint.

Section B Outsourcing requirements to
ensure compliance with Article 6

1.         Where outsourcing takes place,
an administrator shall ensure that the following conditions are satisfied:

(a) 
the service provider shall have the ability,
capacity, and any authorisation required by law to perform the outsourced
functions, services or activities reliably and professionally;

(b) 
the administrator shall be take appropriate
action if it appears that the service provider may not be carrying out the
functions effectively and in compliance with applicable laws and regulatory
requirements;

(c) 
the administrator shall retain the necessary
expertise to supervise the outsourced functions effectively and to manage the
risks associated with the outsourcing;

(d) 
the service provider shall disclose to the
administrator any development that may have a material impact on its ability to
carry out the outsourced functions effectively and in compliance with
applicable laws and regulatory requirements;

(e) 
the service provider shall co-operate with the
relevant competent authority in connection with the outsourced activities, and
the administrator and the relevant competent authority shall have effective
access to data related to the outsourced activities, as well as to the business
premises of the service provider, and the relevant competent authority shall be
able to exercise these rights of access;

(f) 
the administrator shall be able to terminate the
arrangements where necessary.

Section C Data and Methodology requirements to ensure compliance with Article 7(1)

I. Sufficient and accurate data and representative contributor requirements to
ensure compliance with Article 7(1)(a) and (b)

1.           An administrator shall
ensure that the controls in respect of the input data include:

(a) 
criteria that defines who may submit input data
to the administrator and a process for selecting the contributors;

(b) 
a process for evaluating the contributor’s input
data, and stopping the contributor from providing further input data, or
applying other sanctions for non-compliance against the contributor, where
appropriate; and

(c) 
a process for validating the input data,
including against other indicators or data, to ensure its integrity and
accuracy.

II. Robust and reliable methodology requirements to ensure compliance with Article 7(1)(d)

2.           When developing the
benchmark methodology the benchmark administrator,

(a) 
shall take into account factors including the
size and normal liquidity of the market, the transparency of trading and the
positions of market participants, market concentration, market dynamics, and
the adequacy of any sample to represent the economic reality that the benchmark
is intended to measure;

(b) 
determine what constitutes an active market for
the purposes of that benchmark; and

(c) 
establish the priority given to different types
of input data.

3.           An administrator shall use
benchmark methodologies that:

(a) 
are rigorous, continuous and capable of
validation, including back-testing; and

(b) 
are resilient and ensure that the benchmark can
be calculated in the widest set of possible circumstances.

4.           The administrator shall
have in place clear published arrangements that identify those circumstances
where the quantity or quality of input data falls below the standards necessary
for the methodology to determine the benchmark accurately and reliably, and
that describe whether and how the benchmark will be calculated in such
circumstances.

III. Transparency requirements to ensure compliance with Article 7(1)(e)

5.           An administrator shall
specify how changes to the methodology will be consulted on. An administrator
shall publish procedures and the rationale for any proposed material change in
its methodology, including a definition of what constitutes a material change
and when it will notify users of any changes. Those procedures shall:

(a) 
provide advance notice, with a clear timeframe,
that gives the opportunity to analyse and comment on the impact of such
proposed changes; and

(b) 
provide for comments, and the administrator’s
response to those comments, to be made accessible after any consultation,
except where confidentiality has been requested.

Section D Code of Conduct requirements
to ensure compliance with Article 9

1.           The code of conduct
produced pursuant to Article 9 shall include at least the following elements:

(a) 
the requirements necessary to ensure that the
input data is provided in accordance with Articles 7 and 8; who may contribute
input data to the administrator and procedures to evaluate the identity of a
contributor and any submitters and the authorisation of any submitters;

(b) 
policies to ensure contributors to provide all
relevant input data; and

(c) 
the systems and controls that the contributor is
required to establish, including:

– 
procedures for submitting input data, including
requirements for the contributor to specify whether the input data is
transactions data and whether the input data conforms with the administrator’s
requirements;

– 
policies on the use of discretion in providing
input data;

– 
any requirement for the validation of input data
before it is provided to the administrator;

– 
record keeping policies;

– 
suspicious input data reporting requirements;

– 
conflict management requirements.

2.           The administrator shall
ensure that the code of conduct complies with this Regulation.

Section E Contributor governance and controls requirements applied to supervised contributors to ensure
compliance with Article 11

1.           A supervised contributor
shall have effective systems and controls to ensure the integrity and
reliability of all contributions of input data to the administrator, including:

(a) 
controls regarding who may submit input data to
an administrator, including, where proportionate, a process for sign off by a
natural person senior to the submitter;

(b) 
appropriate training for submitters, covering at
least this Regulation and the [Market Abuse Regulation];

(c) 
conflict management measures, including physical
separation of employees where appropriate and consideration of how to remove
incentives to manipulate any benchmark created by remuneration polices;

(d) 
the keeping records of communications in
relation to provision of input data for an appropriate period of time.

2.           Where the input data is
not transaction data, supervised contributors shall establish in addition to
the systems and controls referred to in point (1) policies guiding any use of
judgment or exercise of discretion and retain records of the rationale for any
such judgement or discretion, where proportionate taking into account the
nature of the benchmark and input data.

Section F Benchmark statement
requirements to ensure compliance with Article 15

At minimum the benchmark statement shall
contain:

(a) 
the definitions for all key terms in relation to
the benchmark;

(b) 
the rationale for adopting a methodology and
procedures for the review and approval of the methodology;

(c) 
the criteria and procedures used to determine
the benchmark, including a description of the input data, the priority given to
different types of input data, the use of any models or methods of
extrapolation and any procedure for rebalancing the constituents of a
benchmark’s index;

(d) 
the controls and rules that govern any exercise
of discretion or judgement by the administrator or any contributors, to ensure
consistency in the use of such discretion or judgment;

(e) 
the procedures which govern benchmark
determination in periods of stress, or periods where transaction-data sources
may be insufficient, inaccurate or unreliable and the potential limitations of
the benchmark in such periods; and

(f) 
the procedures for dealing with errors in input
data, or the benchmark determination, including when a re-determination of the
benchmark will be required.

ANNEX II

Interest Rate Benchmarks

1.           This Annex applies to interbank
interest rate benchmarks.

2.           The following requirements
shall apply in addition or in substitution to those set out in Annexes I.

Accurate and Sufficient Data

3.           Points 4 and 5 shall apply
to interbank interest rate benchmarks where the input data is estimates or
quotes.

4.           Transactions data for the
purposes of Article 7(1)(a) shall be:

(a) 
a contributor’s transactions which correspond
with the input data requirements in the code of conduct in:

– 
the unsecured inter-bank deposit market;

– 
other unsecured deposit markets, including
certificates of deposit and commercial paper; and

– 
other related markets overnight index swaps,
repurchase agreements, foreign exchange forwards, interest rate futures and
options and central bank operations.

(b) 
A contributor’s observations of third party
transactions in the transactions described in paragraph 2(a).

5.           In the absence of
sufficient transaction data in paragraph 1, in accordance with Article 7(1)(a),
quotes by third parties to contributors in the same markets and expert
judgement may be used to determine the input data. Input data may also be
adjusted to ensure the input data is representative of, and consistent with,
the inter-bank market. In particular, the input data in paragraph 1 may be
adjusted by application of the following criteria:

(a) 
proximity of transactions to the time of
provision of the input data and the impact of any market events between the
time of the transactions and the time of provision of the input data;

(b) 
interpolation or extrapolation from transactions
data; and

(c) 
adjustments to reflect changes in credit
standing of the contributors and other market participants.

Transparency of Input Data

6.           If the input data is estimates,
the administrator shall publish the input data three months after its provision,
otherwise input data shall be published in accordance with Article 16.

Oversight Function

7.           Points 7, 8 and 9 of
Section A, Annex I shall not apply.

8.           Administrators shall have
an independent oversight committee. Contributors shall constitute a minority of
the membership of the oversight committee. Details of the membership shall be
made public, along with any declarations of conflicts of interests and the
processes for election or nomination of the oversight committee members.

9.           The oversight committee
shall hold no less than one meeting every two months and promptly thereafter
shall publish transparent minutes.

10.         The responsibilities of the
oversight function shall include:

(a) 
reviewing the benchmark’s definition and
methodology;

(b) 
overseeing any changes to the benchmark
methodology and authorising the administrator to undertake a consultation on
such changes;

(c) 
overseeing the administrator’s control framework
and the code of conduct and the management and operation of the benchmark;

(d) 
reviewing and approving procedures for cessation
of the benchmark, including any consultation about a cessation;

(e) 
overseeing any third party involved in the
benchmark provision, such as a calculation or dissemination agents;

(f) 
assessing internal and external audits or
reviews, and monitoring the implementation of identified actions;

(g) 
monitoring the input data and contributors and
the actions of the administrator in challenging or validating contributions of
input data;

(h) 
imposing sanctions for breaches of the code of
conduct where appropriate; and

(i) 
reporting to the relevant competent authorities
any misconduct by contributors or administrators of which they become aware,
and any anomalous or suspicious input data.

Auditing

11.         Points 15 and 16 of Section
A Annex I shall not apply.

12.         An external audit of the
administrators shall be carried out every two years, the first six months after
the introduction of the code of conduct, and subsequently every two years. The
oversight committee may require an external audit of contributing firms if
dissatisfied with any aspects of their conduct.

Code of Conduct

13.         The code of conduct shall
specify in detail the process by which input data is provided, including, in
addition to the requirements of Section D of Annex I:

(a) 
the use of inter-bank transactions and other
transaction data, other relevant and related markets which can be used to
develop a precise assessment of the inter-bank funding market;

(b) 
a requirement to keep accurate internal records
of all transactions in the inter-bank market and other relevant markets,
alongside a requirement to provide these records to the benchmark administrator
and its oversight committee on a regular basis and on request;

(c) 
procedures for validation of contributions of
input data prior to publication and corroboration of contributions of input
data after publication;

(d) 
policies for training of any submitter,
including what inputs to take into account when determining contributions of
input data and how to use expert judgement and including their regulatory
responsibilities;

(e) 
a requirement for the training for traders who
execute trades in derivatives referencing that benchmarks, detailing their role
in the determination process and unacceptable contact with submitters; and

(f) 
a requirement for all contributors to have in place
suspicious reporting procedures to the benchmark administrator and oversight
committee for review.

Contributor Systems and Controls

14.         The following requirement
shall apply to contributors in addition to the requirements set out in Annex I
Section E.

15.         Each contributor’s
submitter and their direct managers shall acknowledge in writing that they have
read the code of conduct and that they will comply with it.

16.         A contributor’s systems and
controls shall include:

(a) 
an outline of responsibilities within each firm,
including internal reporting lines and accountability, including the location
of submitters and managers and the names of relevant individuals and alternates;

(b) 
internal procedures for sign-off of
contributions of input data;

(c) 
disciplinary procedures in respect of attempts
to manipulate, or any failure to report, actual or attempted manipulation by
parties external to the contribution process;

(d) 
effective conflicts of interest management
procedures and communication controls, both within contributors and between contributors
and other third parties, to avoid any inappropriate external influence over
those responsible for submitting rates. Submitters shall work in locations
physically separated from interest rate derivatives traders;

(e) 
effective procedures to prevent or control the
exchange of information between persons engaged in activities involving a risk
of conflict of interests where the exchange of that information may affect the
benchmark data contributed;

(f) 
rules to avoid collusion among contributors, and
between contributors and the benchmark administrators;

(g) 
measures to prevent, or limit, any person from
exercising inappropriate influence over the way in which persons involved in
the provision of input data carries out those activities;

(h) 
the removal of any direct link between the
remuneration of employees involved in the provision of input data and the
remuneration of, or revenues generated by, persons engaged in another activity,
where a conflict of interest may arise in relation to those activities;

(i) 
controls to identify any reverse transaction
subsequent to the provision of input data.

17.         A contributor shall keep
detailed records of:

(a) 
all relevant aspects of contributions of input
data;

(b) 
the process governing input data determination
and the sign-off of input data;

(c) 
the names of submitters and their
responsibilities;

(d) 
any communications between the submitters and
other persons, including internal and external traders and brokers, in relation
to the determination or contribution of input data;

(e) 
any interaction of submitters with the
administrator or any calculation agent;

(f) 
any queries regarding the input data and their
outcome of these queries;

(g) 
sensitivity reports for interest rate swap
trading books and any other derivative trading book with a significant exposure
to interbank interest rates fixings in respect of the input data; and

(h) 
the findings of any internal and external
audits.

18.         Records shall be kept in a
medium that allows the storage of information to be accessible for future
reference with a documented audit trail.

19.         The compliance function of
the contributor shall report any findings, including reverse transactions to
management on a regular basis.

20.         Input data and procedures
shall be subject to regular internal reviews.

21.         An external audit of the contributor’s
input data, compliance with code of conduct and the provisions of this
regulation shall be carried out every two years, the first six months after the
introduction of the code of conduct, and subsequently every two years.

ANNEX III

Commodity Benchmarks

This Annex applies to ‘commodity
benchmarks' which means a benchmark where the underlying asset for the purposes
of Article 3(1)(c) is a commodity within the meaning of point (2) of Article 2
of Commission Regulation (EC) No 1287/2006[28].

Methodology

1.           For the purposes of
Articles 8, 9 and 16, the methodology and the description of the methodology in
the benchmark statement shall include the following elements:

(a) 
all criteria and procedures that are used to
develop the benchmark, including how the administrator uses the input data
including the specific volume, concluded and reported transactions, bids,
offers and any other market information in its assessment and/or assessment
time periods or windows, why a specific reference unit is used, how the
administrator collects such input data, the guidelines that control the
exercise of judgment by assessors and any other information, such as
assumptions, models and/or extrapolation from collected data that are
considered in making an assessment;

(b) 
its procedures and practices that are designed
to ensure consistency between its assessors in exercising their judgment;

(c) 
the relative importance that shall be assigned
to each criterion used in benchmark calculation, in particular the type of
market data used, and the type of criterion used to guide judgement so as to
ensure the quality and integrity of the benchmark calculation;

(d) 
criteria that identify the minimum amount of
transaction data required for a particular benchmark calculation. If no such
threshold is provided for, the reasons why a minimum threshold is not
established shall be explained, including setting out the procedures where
there is no transaction data;

(e) 
criteria that address the assessment periods
where the submitted data fall below the methodology’s recommended transaction
data threshold or the requisite administrator’s quality standards, including
any alternative methods of assessment including theoretical estimation models;

(f) 
criteria for timeliness of contributions of
input data and the means for such contributions of input data whether
electronically, by telephone or otherwise;

(g) 
criteria and procedures that address assessment
periods where one or more contributors submit market data that constitute a
significant proportion of the total input data for that benchmark. The
administrator shall also define in its criteria and procedures for what
constitutes a significant proportion for each benchmark calculation;

(h) 
criteria according to which transaction data may
be excluded from a benchmark calculation.

2.           The administrator shall
publish the:

(a) 
rationale for adopting a particular methodology,
including any price adjustment techniques and a justification of why the time
period or window within which input data is accepted is a reliable indicator of
physical market values;

(b) 
procedure for internal review and approval of a
given methodology, as well as the frequency of this review; and

(c) 
procedure for external review of a given
methodology, including the procedures to gain market acceptance of the methodology
through consultation with users on important changes to their benchmark
calculation processes.

Changes to a Methodology

3.           In accordance with Article
7(1)(e) an administrator shall adopt and make public to users’ explicit
procedures and the rationale of any proposed material change in its
methodology. Those procedures shall be consistent with the overriding objective
that an administrator must ensure the continued integrity of its benchmark
calculations and implement changes for good order of the particular market to
which such changes relate. Such procedures shall provide:

(a) 
advance notice in a clear timeframe that gives
users sufficient opportunity to analyse and comment on the impact of such
proposed changes, having regard to the administrator’s calculation of the
overall circumstances;

(b) 
for users’ comments, and the administrator’s
response to those comments, to be made accessible to all market users after any
given consultation period, except where the commenter has requested
confidentiality.

4.           An administrator shall
regularly examine its methodologies for the purpose of ensuring that they
reliably reflect the physical market under assessment and shall include a
process for taking into account the views of relevant users.

Quality and Integrity of Benchmark
Calculations

5.           In accordance with Article
8 and 9, an administrator shall:

(a) 
specify the criteria that define the physical
commodity that is the subject of a particular methodology;

(b) 
give priority to input data in the following
order, where consistent with the administrators methodologies:

(1) 
concluded and reported transactions;

(2) 
bids and offers;

(3) 
other information.

If concluded and reported transactions are not
given priority, the reasons should be explained as called for in point 6(b).

(c) 
employ sufficient measures designed to use
market data submitted and considered in a benchmark calculation, which are bona
fide, meaning that the parties submitting the market data have executed, or are
prepared to execute, transactions generating such market data and the concluded
transactions were executed at arms-length from each other and particular
attention shall be paid to inter-affiliate transactions;

(d) 
establish and employ procedures to identify
anomalous or suspicious transaction data and keep records of decisions to exclude
transaction data from the administrator’s benchmark calculation process;

(e) 
encourage contributors to submit all of their
market data that falls within the administrator’s criteria for that
calculation. Administrators shall seek, so far as they are able and is
reasonable, ensure that data submitted are representative of the contributors’
actual concluded transactions; and

(f) 
employ a system of appropriate measures so to
ensure that contributors comply with the administrator’s quality and integrity
standards for market data.

6.           An administrator shall
describe and publish with each calculation, to the extent possible without
prejudicing due publication of the benchmark:

(a) 
a concise explanation, sufficient to facilitate
a benchmark subscriber’s or competent authority’s ability to understand how the
calculation was developed, including, at a minimum, the size and liquidity of
the physical market being assessed (such as the number and volume of
transactions submitted), the range and average volume and range and average of
price, and indicative percentages of each type of market data that have been
considered in a calculation; terms referring to the pricing methodology shall
be included such as “transaction-based”, “spread-based” or “interpolated or extrapolated”;

(b) 
a concise explanation of the extent to which,
and the basis upon which, judgment including the exclusions of data which
otherwise conformed to the requirements of the relevant methodology for that
calculation, basing prices on spreads or interpolation, extrapolation, or
weighting bids or offers higher than concluded transactions, if any, was used
in any calculation.

Integrity of the Reporting Process

7.           In accordance with Article
5, an administrator shall:

(a) 
specify the criteria that define who may submit
market data to the administrator;

(b) 
have quality control procedures to evaluate the
identity of a contributor and any employee of a contributor who reports input
data and the authorization of such person to report input data on behalf of a
contributor;

(c) 
specify the criteria applied to employees of a
contributor who are permitted to submit input data to an administrator on
behalf of a contributor; encourage contributors to submit transaction data from
back office functions and seek corroborating data from other sources where
transaction data is received directly from a trader; and

(d) 
implement internal controls and written
procedures to identify communications between contributors and assessors that
attempt to influence a calculation for the benefit of any trading position
(whether of the contributor, its employees or any third party), attempt to
cause an assessor to violate the administrator’s rules or guidelines or
identify contributors that engage in a pattern of submitting anomalous or
suspicious transaction data. Those procedures shall include provision for
escalation by the administrator of inquiry within the contributor’s company.
Controls shall include cross-checking market indicators to validate submitted
information.

Assessors

8.           In accordance with Article
5, an administrator shall:

(a) 
adopt and have explicit internal rules and
guidelines for selecting assessors, including their minimum level of training,
experience and skills, as well as the process for periodic review of their
competence;

(b) 
maintain continuity and succession planning in
respect of its assessors in order to ensure that calculations are made
consistently and by employees who possess the relevant levels of expertise;

(c) 
institute internal control procedures to ensure
the integrity and reliability of calculations. At a minimum, such internal
controls and procedures shall require the on-going supervision of assessors to
ensure that the methodology was properly applied.

Audit Trails

9.           In accordance with Article
5, an administrator shall have rules and procedures in place to document
contemporaneously relevant information, including:

(a) 
all market data;

(b) 
the judgments that are made by assessors in
reaching each benchmark calculation;

(c) 
whether a calculation excluded a particular
transaction, which otherwise conformed to the requirements of the relevant
methodology for that calculation, and the rationale for doing so;

(d) 
the identity of each assessor and of any other
person who submitted or otherwise generated any of the information in points
(a), (b) or (c).

10.         In accordance with Article 5,
an administrator shall have rules and procedures in place to ensure that an
audit trail of relevant information is retained for at least five years in
order to document the construction of its calculations.

Conflicts of Interest

11.         In accordance with Article 5,
an administrator’s conflicts of interest policies and procedures shall:

(a) 
ensure that benchmark calculations are not
influenced by the existence of, or potential for, a commercial or personal
business relationship or interest between the administrator or its affiliates,
its personnel, clients, any market participant or persons connected with them;

(b) 
ensure that administrator personnel’s personal
interests and business connections are not permitted to compromise the
administrator’s functions, including outside employment, travel, and acceptance
of entertainment, gifts and hospitality provided by administrator’s clients or
other commodity market participants;

(c) 
ensure, in respect of identified conflicts,
appropriate segregation of functions within the administrator by way of
supervision, compensation, systems access and information flows;

(d) 
protect the confidentiality of information
submitted to or produced by the administrator, subject to the disclosure
obligations of the administrator;

(e) 
prohibit administrator managers, assessors and
other employees from contributing to a benchmark calculation by way of engaging
in bids, offers and trades on either a personal basis or on behalf of market
participants;

(f) 
effectively address identified conflicts of
interest which may exist between its benchmark provision (including all
employees who perform or otherwise participate in benchmark calculation
responsibilities), and any other business of the administrator.

12.         An administrator shall
ensure that its other business operations have in place procedures and
mechanisms designed to minimise the likelihood that conflicts of interest will
affect the integrity of benchmark calculations.

13.         An administrator shall
ensure it has segregated reporting lines amongst its managers, assessors and
other employees and from the managers to the administrator’s most senior level
management and its board to ensure:

(a) 
that the administrator satisfactorily implements
the requirements of the Regulation; and

(b) 
that responsibilities are clearly defined and do
not conflict or cause a perception of conflict.

14.         An administrator shall
disclose to its users as soon as it becomes aware of a conflict of interest
arising from the ownership of the administrator.

Complaints

15.         In accordance with Article 5,
an administrator shall have in place and publish written procedures for
receiving, investigating and retaining records concerning complaints made about
an administrator’s calculation process. Such complaint mechanisms shall ensure
that:

(a) 
an administrator shall have in place a mechanism
detailed in a written complaints handling policy, by which its subscribers may
submit complaints on whether a specific benchmark calculation is representative
of market value, proposed benchmark calculation changes, applications of
methodology in relation to a specific benchmark calculation and other editorial
decisions in relation to the benchmark calculation processes;

(b) 
an administrator shall ensure that its written
complaints handling policy includes, among other things, the process and target
timetable for handling of complaints;

(c) 
formal complaints made against an administrator
and its personnel are investigated by that administrator in a timely and fair
manner;

(d) 
the inquiry is conducted independently of any personnel
who may be involved in the subject of the complaint;

(e) 
an administrator aims to complete its
investigation promptly;

(f) 
an administrator advises the complainant and any
other relevant parties of the outcome of the investigation in writing and
within a reasonable period;

(g) 
there is recourse to an independent third party
appointed by the administrator. if a complainant is dissatisfied with the way a
complaint has been handled by the relevant administrator or the administrator’s
decision in the situation no later than six months from the time of the
original complaint; and

(h) 
all documents relating to a complaint, including
those submitted by the complainant as well as an administrator’s own record,
are retained for a minimum of five years.

16.         Disputes as to daily
pricing determinations, which are not formal complaints, shall be resolved by
the administrator with reference to its standard appropriate procedures. If a
complaint results in a change in price, that shall be communicated to the
market as soon as possible.

LEGISLATIVE FINANCIAL STATEMENT

FRAMEWORK OF THE PROPOSAL/INITIATIVE

Title of
the proposal/initiative

Regulation
of the European Parliament and of the Council on indices used as benchmarks in
financial instruments and financial contracts

Policy area(s)
concerned in the ABM/ABB structure[29]

Internal
Market – Financial Markets

Nature of
the proposal/initiative

X The proposal/initiative relates to a new action

 ̈ The proposal/initiative relates to a new action following a pilot
project/preparatory action[30]

 ̈ The proposal/initiative relates to the extension of an existing
action

 ̈ The proposal/initiative relates to an action redirected towards a
new action

Objectives

The
Commission's multiannual strategic objective(s) targeted by the
proposal/initiative

Strengthen investor confidence; reduce the risks
of market disorder; reduce systemic risks

Specific
objective(s) and ABM/ABB activity(ies) concerned

Specific
objectives:

- Reduce
the risk of benchmark manipulation

- Ensure
the appropriate use of robust and representative benchmarks

ABM/ABB
activities concerned

The
specific objectives listed above require the attainment of the following
operational objectives:

- Limit
incentives and opportunities for manipulation of benchmarks

- Minimise
discretion - ensure benchmarks are based on sufficient & representative
data

- Ensure
robust governance and controls address risk

- Enhance
transparency and ensure the use of benchmarks is based on suitability

- Ensure
effective oversight

Expected
result(s) and impact

Specify the
effects which the proposal/initiative should have on the beneficiaries/groups
targeted.

The
proposal aims at:

-
Regulating the provision of benchmarks and the provision of input data to
benchmarks

- Ensuring
that adequate governance and controls are applied to the provision of
benchmarks and that conflicts of interest are avoided

- Ensuring
that benchmark methodologies and input data are robust and reliable

- Ensuring
that the activity of contributing to benchmarks is subject to adequate controls
and that conflicts of interest are avoided

- Ensuring
that benchmarks are provided in a transparent manner

- Ensuring
that a suitability assessment is performed when benchmarks are used as a
reference in a financial contract with a consumer

Indicators
of results and impact

1. Reduce the risk of benchmark manipulation

- Number of breaches of market abuse regulation
in respect of benchmarks

- Number of sanctions and penalties imposed

- Number of onsite inspections

- Number of supervisory measures

2. Ensure the appropriate use of robust and
representative benchmarks

- Number of breaches of regulation

- Number of sanctions and penalties imposed

- Number of onsite inspection

- Number of supervisory measures

- Number of civil actions for failure to comply
with this regulation by users of the benchmark against administrators and
contributors

- Number of complaints received by the Commission
from benchmark users

Grounds
for the proposal/initiative

Requirement(s)
to be met in the short or long term

As a result
of the application of the Regulation in Member States:

- The risk
of benchmark manipulation will be reduced

- The use
of robust and suitable benchmarks will be ensured

Added
value of EU involvement

Benchmarks
are cross border in respect of their use and provision. In the absence of an EU
legislative framework, individual actions by member states would be
ineffective, as there is no obligation or incentive on Member States to
cooperate with each other and the absence of such cooperation leaves scope for
regulatory arbitrage. EU involvement ensures a consistent and co-ordinated
response that minimises the inefficiencies that would be created through the
divergent approaches and possibilities for regulatory arbitrage that would
otherwise exist.

Lessons
learned from similar experiences in the past

Benchmarks are similar to credit ratings in that
they are both reference points for investments or financial contracts. In both
cases the financial crisis has revealed how doubts regarding their integrity
and accuracy can undermine markets and cause harm to both the real economy and
investors. This proposal draws on the regulatory experience in relation to the
regulation of credit rating agencies, in particular in respect of the most
efficient and effective regulatory and supervisory structures and governance
requirements.

Compatibility
and possible synergy with other appropriate instruments

This proposal has significant synergies with the
proposal for a Market Abuse Regulation (MAR) in Articles 2(3)(d) and 8(1)(d)
and criminal sanctions for market abuse Directive (CSMAD) which clarify that
any manipulation of benchmarks is clearly and unequivocally illegal and subject
to administrative or criminal sanctions. The regulation on energy market
integrity and transparency (REMIT) also provides that the manipulation of
benchmarks that are used for wholesale energy products is illegal. These
instruments therefore address the behaviour of individuals in respect of the
manipulation of benchmarks while this proposal addresses the weaknesses in
framework for the production of benchmarks that facilitates the manipulation of
benchmarks.

The Markets in Financial Instruments Directive
and implementing regulation of that directive, the Prospectus Directive and
implementing regulation and the Undertakings for Collective Investment in
Transferable Securities Directive all regulate the use and transparency of
benchmarks and so complement the actions of this proposal.

Duration
and financial impact

 ̈ Proposal/initiative of limited
duration

Proposal/initiative in effect from
[DD/MM]YYYY to [DD/MM]YYYY

Financial impact from YYYY to YYYY

X Proposal/initiative of unlimited
duration

Management
mode(s) envisaged[31]

X Centralised direct management
by the Commission

X Centralised indirect management
with the delegation of implementation tasks to:

executive agencies

X         bodies set up by the Communities[32]

national public-sector bodies/bodies with
public-service mission

persons entrusted with the implementation
of specific actions pursuant to Title V of the Treaty on European Union and
identified in the relevant basic act within the meaning of Article 49 of the
Financial Regulation

 ̈ Shared management with the Member States

 ̈ Decentralised management with third countries

 ̈ Joint management with international organisations (to be specified)

If more than one
management mode is indicated, please provide details in the
"Comments" section.

Comments

Combination of centralised direct management (DG MARKT) and
centralised indirect management with the delegation of implementation tasks to
a body created by the EC (ESMA)

MANAGEMENT MEASURES

Monitoring
and reporting rules

Specify
frequency and conditions.

Article 81
Regulation (EU) No 1095/2010 of The European Parliament and of the Council of
24 November 2010 establishing the European Securities and Markets Authority
provides for evaluation of the experience acquired as a result of the operation
of the Authority every three years from the effective start of its operation.
Under Article 35 of the Regulation, a report on the application of this
Regulation will be produced by 1 January 2019.

Management
and control system

Risk(s)
identified

An impact
assessment has been carried out for the proposal to reform the financial
supervision system in the EU to accompany the draft Regulations establishing
the European Banking Authority, the European Insurance and Occupational
Pensions Authority and the European Securities Markets Authority (ESMA).

The
additional resources for ESMA foreseen as a result of the current proposal are
needed in order to allow ESMA to carry out its competences, notably its role
in:

-
Participating in the colleges of supervisors for critical benchmarks and
establishing a mediation mechanism, including binding mediation on important
subjects specified in this Regulation, to assist in reaching a common view
among the competent authorities in the event of any disagreement in relation to
this Regulation.

-
Coordinating the development of cooperation arrangements with third counties
and the exchange between competent authorities of information received from
third countries.

- Drafting
guidelines to promote convergence and cross-sector consistency of penalty
regimes in respect of breaches of this Regulation.

-
Maintaining a list of administrators registered in accordance with this
Regulation and third country firms providing benchmarks in the Union.

- Receiving
notifications of the use of a benchmark in a financial instrument or financial
contract within the Union, maintaining a register and ensuring that administrators
are aware of this use.

Without the
necessary resources a timely and efficient fulfilment of the role of the
Authority cannot be ensured.

Control
method(s) envisaged

Management
and control systems as provided for in the ESMA Regulation will also apply with
regard to the role of ESMA in the present proposal.

The final
set of indicators to assess the performance of ESMA will be decided by the
Commission at the time of conducting the first required evaluation. For the
final assessment, the quantitative indicators will be as important as the
qualitative evidence gathered in the consultations. The evaluation shall be
repeated every three years.

Costs and
benefits of controls and probable non-compliance rate

Costs are estimated on section 3. The main benefits
comprise:

- Reducing the risk of manipulation and therefore
enhancing market stability and restored confidence in financial markets.

- Enhancing the reliability of benchmarks and
thereby enhanced fairness, integrity and efficiency of financial markets.

- Ensuring the appropriate use of robust and
representative benchmarks and therefore enhanced consumer and investor
protection.

In consequence, this proposal would contribute to
enhanced market fairness and ensure consumer and investor protection. Such
benefits are difficult to quantify. However, given the global importance of
robust and reliable benchmarks for maintaining market stability and restoring
confidence in markets, the benefits are substantial in relation to the costs.

A low non-compliance rate is estimated since the
initiative proposes clear and enforceable rules with incentives to ensure
compliance.

Measures
to prevent fraud and irregularities

Specify existing or envisaged prevention
and protection measures.

For the purposes of combating fraud, corruption
and any other illegal activity, the provisions of Regulation (EC) No 1073/1999
of the European Parliament and of the Council of 25 May 1999 concerning
investigations conducted by the European Anti-Fraud Office (OLAF) shall apply
to ESMA without any restriction.

The Authority shall accede to the
Interinstitutional Agreement of 25 May 1999 between the European Parliament,
the Council of the European Union and the Commission of the European
Communities concerning internal investigations by the European Anti-Fraud
Office (OLAF) and shall immediately adopt appropriate provisions for all staff
of the Authority.

The funding decisions and the agreements and the
implementing instruments resulting from them shall explicitly stipulate that
the Court of Auditors and OLAF may, if need be, carry out on-the-spot checks on
the beneficiaries of monies disbursed by the Authority as well as on the staff
responsible for allocating these monies.

ESTIMATED FINANCIAL IMPACT OF THE
PROPOSAL/INITIATIVE

Heading(s)
of the multiannual financial framework and expenditure budget line(s) affected

Existing budget lines

In order of
multiannual financial framework headings and budget lines.

Heading of multiannual financial framework || Budget line || Type of expenditure || Contribution

Number [Description] || Diff. || from EFTA countries[33] || from candidate countries[34] || from third countries || within the meaning of Article 18(1)(aa) of the Financial Regulation

|| 12.03.04 European Securities and Markets Authority (ESMA) || Diff. || YES || YES || NO || NO

This legislative initiative will have the
following impacts on expenditures:

a) DG MARKT
for drafting delegated acts, as well as for the evaluation, monitoring of the
implementation and potential review of the initiative:

1 AD staff member (full-time) and related
costs; estimated yearly costs of € 0.142 M per year.

b) ESMA

(i) HR costs: two temporary agents for participating and mediating in the colleges
of supervisors for critical benchmarks, providing technical advice to the
Commission on the implementation of this Regulation, coordinating the
development of cooperation arrangements with third countries, drafting
guidelines to promote convergence and cross-sector consistency of penalty
regimes and maintaining registers of notifications on the use of benchmarks and
a list of registered benchmark administrators.

The total yearly costs of these 2 temporary
agents would be of €0.326 M, towards which the Commission would contribute 40%
(€ 0.130 M) and Member States 60% (€ 0.196 M).

It is not foreseen that the staff members
allocated to ESMA could be reduced in the future (after 2020) as the number of
benchmarks, including critical benchmarks, is no likely to decrease in the
future but rather to increase and ESMA will still need to participate and
mediate in the colleges of supervisors for critical benchmarks and carry out
other relevant tasks set above.

(ii) Operational and infrastructure
costs: an initial expense of € 0.25 M is also
estimated for ESMA, towards which the Commission would contribute
40% (€ 0.1 M) and Member States 60% (€ 0.15 M). This expense relates mainly to
IT systems for ESMA to fulfil the requirements of:

- Maintaining a list of administrators
registered in accordance with this Regulation and third country firms providing
benchmarks in the Union.

- Receiving notifications of the use of a
benchmark in a financial instrument or financial contract within the Union, and
maintaining a register and ensuring that administrators are aware of this use.

ESMA will also need to produce a report
on the application of this Regulation by 1 January 2018. Total cost of €0.3 M towards which the Commission will contribute
40% (€ 0.12M) and Member States 60% (€ 0.18 M) in 2017.

Estimated
impact on expenditure

The new tasks will be carried out with
the human resources available within the annual budgetary allocation procedure,
in the light of budgetary constraints which are applicable to all EU bodies and
in line with the financial programming for agencies. Notably, the resources needed by the
agency for the new tasks and indicated in the present financial statement will
be consistent and compatible with the human and financing programming for ESMA
set by the recent Communication to the European Parliament and the Council –
Programming of human and financial resources for decentralised agencies
2014-2020' (COM(2013)519).

Summary
of estimated impact on expenditure

EUR million (to three decimal places)

Heading of multiannual financial framework: || Number 1A || Competitiveness for Growth and Jobs

DG: MARKT || || || Year 2015[35] || Year 2016 || Year 2017 || Year 2018 || Year 2019 || Year 2020 || TOTAL

 Operational appropriations || || || || || || ||

12.03.04 - European Securities and Markets Authority (ESMA) || Commitments || (1) || 0.240 || 0.130 || 0.250 || 0.130 || 0.130 || 0.130 || 1.010

Payments || (2) || 0.240 || 0.130 || 0.250 || 0.130 || 0.130 || 0.130 || 1.010

Appropriations of an administrative nature financed from the envelope of specific programmes[36] || || || || || || ||

Number of budget line || 12.03.04 || (3) || || 0 || 0 || 0 || 0 || 0 || 0

TOTAL appropriations for DG MARKT || Commitments || =1+1a +3 || 0.240 || 0.130 || 0.250 || 0.130 || 0.130 || 0.130 || 1.010

Payments || =2+2a +3 || 0.240 || 0.130 || 0.250 || 0.130 || 0.130 || 0.130 || 1.010

 TOTAL operational appropriations || Commitments || (4) || 0 || 0 || 0 || 0 || 0 || 0 ||

Payments || (5) || 0 || 0 || 0 || 0 || 0 || 0 ||

 TOTAL appropriations of an administrative nature financed from the envelope for specific programmes || (6) || 0 || 0 || 0 || 0 || 0 || 0 ||

TOTAL appropriations under HEADING Number 1A of the multiannual financial framework || Commitments || =4+ 6 || 0.240 || 0.130 || 0.250 || 0.130 || 0.130 || 0.130 || 1.010

Payments || =5+ 6 || 0.240 || 0.130 || 0.250 || 0.130 || 0.130 || 0.130 || 1.010

Heading of multiannual financial framework || 5 || ‘Administrative expenditure’

EUR million (to three decimal places)

|| || || Year 2015 || Year 2016 || Year 2017 || Year 2018 || Year 2019 || Year 2020 || TOTAL

DG: MARKT || ||

 Human resources (of DG MARKT) || 0.132 || 0.132 || 0.132 || 0.132 || 0.132 || 0.132 || 0.792

 Other administrative expenditure || 0.010 || 0.010 || 0.010 || 0.010 || 0.010 || 0.010 || 0.060

TOTAL DG MARKT || Appropriations || 0.142 || 0.142 || 0.142 || 0.142 || 0.142 || 0.142 || 0.852

TOTAL appropriations for HEADING 5 of the multiannual financial framework || (Total commitments = Total payments) || 0.142 || 0.142 || 0.142 || 0.142 || 0.142 || 0.142 || 0.852

EUR million (to three decimal places)

|| || || Year 2015 || Year 2016 || Year 2017 || Year 2018 || Year 2019 || Year 2020 || TOTAL

TOTAL appropriations under HEADINGS 1 to 5 of the multiannual financial framework || Commitments || 0.382 || 0.272 || 0.392 || 0.272 || 0.272 || 0.272 || 1.862

Payments || 0.382 || 0.272 || 0.392 || 0.272 || 0.272 || 0.272 || 1.862

Estimated
impact on operational appropriations

 ̈         The proposal/initiative does not require the use of
operational appropriations

X         The proposal/initiative requires
the use of operational appropriations, as explained below:

A large part of the operational appropriations by the Commission
would relate to the increase of the funding of ESMA derived from the
requirements under this Regulation. Particularly, ESMA will require 2
additional staff members (temporary agents) with a total cost of €0.326 M
yearly, which would be co-financed by the Commission (€ 0.130 M) and MS (€ 0.196
M). They will carry out the activities of:

Participating and mediating in the colleges of supervisors for
benchmarks

Providing technical advice to the Commission on the implementation
of this Regulation.

Coordinating the development of cooperation arrangements with third
countries

Drafting guidelines to promote convergence and cross-sector
consistency of penalty regimes

Maintaining registers of notifications on the use of benchmarks and
a list of registered benchmark administrator

An initial operational expense of € 0.25 M is also estimated for
ESMA, towards which the Commission would contribute 40% (€ 0.1 M) and Member
States 60% (€ 0.15 M). This expense relates mainly to IT systems for ESMA to
fulfil the requirements of:

Maintaining a list of administrators registered in accordance with
this Regulation and third country firms providing benchmarks in the Union.

Receiving notifications of the use of a benchmark in a financial
instrument or financial contract within the Union, and maintaining a register.

This initiative also requires the increase of the funding of ESMA in
2017 to cover the costs of producing a report on the application of this
Regulation by 1 January 2018. The total cost of producing this report would be
€ 0.3 M (to be committed and transferred to ESMA in 2017) towards which the
Commission would contribute 40% (€ 0.12M) and Member States 60% (€ 0.18 M) in
2017.

Estimated
impact on appropriations of an administrative nature

Summary

 ̈         The proposal/initiative does not require the use of
appropriations of an administrative nature

X         The proposal/initiative requires
the use of appropriations of an administrative nature, as explained below:

EUR million (to
three decimal places)

|| Year 2015[37] || Year 2016 || Year 2017 || Year 2018 || Year 2019 || Year 2020 || TOTAL

HEADING 5 of the multiannual financial framework || 0.142 || 0.142 || 0.142 || 0.142 || 0.142 || 0.142 || 0.852

Human resources || 0.132 || 0.132 || 0.132 || 0.132 || 0.132 || 0.132 || 0.792

Other administrative expenditure || 0.010 || 0.010 || 0.010 || 0.010 || 0.010 || 0.010 || 0.060

Subtotal HEADING 5 of the multiannual financial framework || 0.142 || 0.141 || 0.142 || 0.142 || 0.142 || 0.142 || 0.852

TOTAL || 0.142 || 0.142 || 0.142 || 0.142 || 0.142 || 0.142 || 0.852

The human resources appropriations required
will be met by appropriations from the DG that are already assigned to
management of the action and/or have been redeployed within the DG, together if
necessary with any additional allocation which may be granted to the managing
DG under the annual allocation procedure and in the light of budgetary
constraints.

Assumptions:

– based on 1 AD grade official working full
time on this initiative at DG MARKT (avg. costs of €132,000 per year);

– average annual salary costs of personnel
are based on DG BUDG guidance;

– mission costs of €10,000 yearly,
estimated based on 2012 draft budget for missions per headcount.

Estimated
requirements of human resources

 ̈         The proposal/initiative does not require the use of human
resources.

X         The proposal/initiative requires
the use of 1 Commission official of grade AD at the Commission Headquarters (DG
MARKT) as explained below. MARKT is the policy area or budget title concerned.
The 1 Commission official of grade AD will be financed through redeployment.

Description of tasks to be carried out:
adoption of Delegated Acts further specifying the legislation and including on-going
delegated acts further specifying different benchmark sectors in light of
market and technological developments. Designating critical cross border benchmarks
and further specifying the conditions for these.

Estimate to be expressed in full time
equivalent units

|| Year 2015 || Year 2016 || Year 2017 || Year 2018 || Year 2019 || Year 2020

||  Establishment plan posts (officials and temporary agents)

XX 01 01 01 (Headquarters and Commission’s Representation Offices) || 1 || 1 || 1 || 1 || 1 || 1

XX 01 01 02 (Delegations) || || || || || ||

XX 01 05 01 (Indirect research) || || || || || ||

10 01 05 01 (Direct research) || || || || || ||

||  External personnel (in Full Time Equivalent unit: FTE)[38]

XX 01 02 01 (CA, INT, SNE from the "global envelope") || || || || || ||

XX 01 02 02 (CA, INT, JED, LA and SNE in the delegations) || || || || || ||

XX 01 04 yy[39] || - at headquarters || || || || || ||

- in delegations || || || || || ||

XX 01 05 02 (CA, SNE, INT - Indirect research) || || || || || ||

10 01 05 02 (CA, SNE, INT - Direct research) || || || || || ||

Other budget lines (specify) || || || || || ||

TOTAL || 1 || 1 || 1 || 1 || 1 || 1

The human resources required will be met by
staff from the DG who are already assigned to management of the action and/or
have been redeployed within the DG, together if necessary with any additional
allocation which may be granted to the managing DG under the annual allocation
procedure and in the light of budgetary constraints.

Compatibility
with the current multiannual financial framework

X The proposal/initiative is compatible the
new multiannual financial framework.

 ̈         Proposal/initiative will entail reprogramming of the
relevant heading in the multiannual financial framework.

Explain what reprogramming is required, specifying the
budget lines concerned and the corresponding amounts.

Na

 ̈         Proposal/initiative requires application of the flexibility
instrument or revision of the multiannual financial framework.[40]

Explain what is required, specifying the headings and
budget lines concerned and the corresponding amounts.

Na

Third-party
contributions

 ̈         The proposal/initiative does not provide for co-financing
by third parties.

X The proposal/initiative provides for the
co-financing estimated below:

Appropriations in EUR million (to three decimal
places)

|| Year 2015 || Year 2016 || Year 2017 || Year 2018 || Year 2019 || Year 2020 || Total

Specify the co-financing body || Member States || Member States || Member States || Member States || Member States || Member States || Member States

TOTAL appropriations co-financed || 0.361 || 0.196 || 0.376 || 0.196 || 0.196 || 0.196 || 1.521

The third-party contributions for 2015 refer to the co-financing of ESMA by
Member Estates. The financed costs relate mainly to:

a) Staff costs: Member States will contribute 60% to the financing of the 2
temporary agents required at ESMA headquarters for the implementation of the
requirements under this Regulation. This would imply a yearly contribution by
Member States of € 0.196 M.

b) Initial operational expense: Member States would also need to contribute 60% of the € 0.25 M
initial operational expense by ESMA in 2015, totalling € 0.15 M. This expense
relates mainly to IT systems for ESMA to fulfil the requirements under this
Regulation.

c) Report on the implementation: Member States shall also contribute toward the financing of a
report on the application of this Regulation by 1 January 2018 by ESMA. The
total costs of the report are foreseen as €0.3 M[41] towards which the Member
States will contribute 60% (€ 0.18 M) in 2017.

Estimated impact on revenue

X         Proposal/initiative has no
financial impact on revenue.

 ̈         Proposal/initiative has the following financial impact:

ANNEX
to Legislative Financial Statement for Proposal for Regulation on Benchmarks on
estimated cost for ESMA under the requirements of the proposal

The costs related to the tasks to be
carried out by ESMA have been estimated according to three cost categories: the
staff costs, the infrastructure costs and the operations costs, in line with
the classification in the general draft budget of ESMA.

a) Staff costs: the need for increased staffing numbers reflects the new duties for
ESMA derived from this Regulation. These relate to ESMA participation and mediation in
colleges of supervisors for critical benchmarks. Also to provision of technical
advice to the Commission on the implementation of this Regulation, coordination
of cooperation arrangements with third countries, drafting guidelines to
promote convergence and cross-sector consistency of penalty regimes and
maintaining registers of notifications on the use of benchmarks and a list of
registered benchmark administrators.

According to current estimations from the
Commission’s own estimates and ESMA estimates the activities will require 2
temporary agents. This is in addition to the staff members that are currently
working on benchmarks at ESMA. The additional yearly staff costs estimated for
ESMA are of € 0.326 M towards which the Commission will contribute 40% (€ 0.130
M) and Member States 60% (€ 0.196 M).

b) Operational and infrastructure costs: an initial operational expense of € 0.25 M is also estimated for
ESMA, towards which the Commission would contribute 40% (€ 0.1 M) and Member
States 60% (€ 0.15 M) in 2015. This expense relates mainly to IT systems for
ESMA to fulfil the requirements of:

- Maintaining a list of administrators
registered in accordance with this Regulation and third country firms providing
benchmarks in the Union.

- Receiving notifications of the use of a
benchmark in a financial instrument or financial contract within the Union, and
maintaining a register and ensuring that administrators are aware of this use.

This initiative also requires the
increase the funding of ESMA by € 0.3 M in 2017 to cover the costs of producing
a report on the application of this Regulation by 1 January 2018. The total cost of producing this report are estimated to be €0.3 M
(to be committed and paid in 2017) towards which the Commission would
contribute 40% (€ 0.12M) and Member States 60% (€ 0.18 M). These costs have
been estimated based on the average costs of producing similar reports at DG
MARKT and applying a correction to reflect the impact of inflation.

The proposal does NOT have financial implications on revenue for
ESMA.

The detailed breakdown of estimated staff costs by various
categories is presented in table 1 below.

Other assumptions:

– based on the distribution of FTEs in 2012
draft budget, the 2 additional FTEs are assumed to be comprised of 2 temporary
agents, with a total cost of €0.326 M yearly, which would be co-financed by the
Commission (€ 0.130 M) and MS (€ 0.196 M) yearly.

– average annual salary costs for different
categories of personnel are based on DG BUDG guidance of € 132,000 per year;

– salary weighting coefficient for Paris of
1.161;

– mission costs of €10,000, estimated based
on 2012 draft budget for missions per headcount;

– recruiting-related costs (travel, hotel,
medical examinations, installation and other allowances, removal costs, etc.)
of €12,700, estimated based on 2012 draft budget for recruiting per new
headcount.

ESMA STAFF COSTS || || || || Euro (millions, 3 decimal places) || ||

Cost Type || Number || Avg. cost || 2015 || 2016 || 2017 || 2018 || 2019 || 2020 || TOTAL

Title 1: Staff Expenditure || || || || || || || || ||

of which temporary agents || 2 || 0.153 || 0.306 || 0.306 || 0.306 || 0.306 || 0.306 || 0.306 || 1.836

|| || || || || || || || ||

Expenditure related to recruitments || || 0.025 || || || || || || 0.025

|| || || || || || || || ||

Mission expenses || || || 0.020 || 0.020 || 0.020 || 0.020 || 0.020 || 0.020 || 0.120

|| || || || || || || || ||

Total title 1 Staff expenditure || || 0.351 || 0.326 || 0.326 || 0.326 || 0.326 || 0.326 || 1.981

|| || || || || || || || ||

of which Community contribution (40%) || || 0.140 || 0.130 || 0.130 || 0.130 || 0.130 || 0.130 || 0.790

of which Member States contribution (60%) || || 0.211 || 0.196 || 0.196 || 0.196 || 0.196 || 0.196 || 1.191

[1]               COM(2011) 651 final 2011/0295 (COD)
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0651:FIN:EN:PDF

[2]               Brussels, 20.10.2011 COM(2011) 654 final 2011/0297 (COD)
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0654:FIN:EN:PDF

[3]               REMIT regulation:
http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2011:326:0001:01:EN:HTML

[4]               MIFID Article 40(1):
http://ec.europa.eu/internal_market/securities/isd/mifid_en.htm

[5]               MIFID Implementing Regulation Article 37(1)b
http://ec.europa.eu/internal_market/securities/isd/mifid2_en.htm

[6]               http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2011:0652:FIN:EN:PDF

[7]               Directive 2003/71/EC and Regulation (EC) No 809/2004,
Annex XII, item 4.2.2

[8]               Undertakings for Collective Investment in
Transferable Securities Directive (2009/65/EC), Article 53

[9]               http://www.esma.europa.eu/consultation/Consultation-Principles-Benchmarks-Setting-Processes-EU

[10]             http://www.esma.europa.eu/system/files/2013-150.pdf

[11]             [ xxx]

[12]             OJ L 145, 30.4.2004, p. 1.

[13]             OJ L 345, 31.12.2003, p. 64.

[14]             OJ L302, 17.11.2009, p. 32

[15]             OJ L 326 , 8.12.2011, p. 1.

[16]             OJ L 281, 23.11.1995, p. 31.

[17]             OJ L 8, 12.1.2001, p. 1.

[18]             OJ L 55, 28.2.2011, p. 13.

[19]             OJ L 211 14.8.2009 p. 55.

[20]             OJ L 9 14.8.2009 p. 112.

[21]             OJ L 176 27.6.2013 p. 338.

[22]             OJ L 335, 17.12.2009, p. 1.

[23]             OJ L302 17.11.2009 p. 32.

[24]             OJ L 174, 1.7.2011, p. 1.

[25]             OJ L 174, 1.7.2011, p. 1.

[26]             OJ L 133, 22.5.2008,
p. 66.

[27]             OJ L 241, 2.9.2006 p. 1.

[28]             OJ L 241, 2.9.2006 p1

[29]             ABM: Activity-Based Management – ABB: Activity-Based
Budgeting.

[30]             As referred to in Article 49(6)(a) or (b) of the
Financial Regulation.

[31]             Details of management modes and references to the
Financial Regulation may be found on the BudgWeb site: http://www.cc.cec/budg/man/budgmanag/budgmanag_en.html

[32]             As referred to in Article 185 of the Financial
Regulation.

[33]             EFTA: European Free Trade Association.

[34]             Candidate countries and, where applicable, potential
candidate countries from the Western Balkans.

[35]             Year N is the year in which implementation of the
proposal/initiative starts.

[36]             Technical and/or administrative assistance and
expenditure in support of the implementation of EU programmes and/or actions
(former ‘BA’ lines), indirect
research, direct research.

[37]

[38]             CA= Contract Agent; LA = Local
Agent; SNE = Seconded National Expert; INT = agency staff (‘Intérimaire’); JED= ‘Jeune Expert
en Délégation’ (Young Experts
in Delegations).

[39]             Sub-ceiling
for external staff covered by
operational appropriations (former "BA" lines).

[40]             See points 19 and 24 of the Interinstitutional
Agreement.

[41]             These costs have been estimated based on the average
costs of producing similar reports by DG MARKT and applying a correction to
reflect the impact of inflation.