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Non-significant benchmark – Notizen zum Aufsichtsrecht
Schlagwort: Non-significant benchmark
ESMA publishes Final Report on Guidelines on non-significant benchmarks – Part 2
Veröffentlicht am 31 Januar 2019 5 November 2019 von Dr. Verena Ritter-Döring and Charlotte Dreisigacker
On December 20, 2018 ESMA published its Final Report on the Guidelines on non-significant benchmarks. These represent ESMA´s administrative practice and fill the broad regulations of the Benchmark Regulation (BMR) with more details, which makes their implementation considerably easier for the obligated parties. The guidelines have no direct effect in the EU member states but are generally to be adopted one-by-one by the national supervisory authorities, so that they will be applied as the administrative practice of the respective national authority.
In Part 1 we looked at the definition of a non-significant benchmark (NSB) and the Guidelines on the oversight function and on input data. Part 2 will highlight the new requirements on the transparency of methodology and governance set out in the Guidelines.
Guidelines on transparency of methodology (Article 13 BMR)
Article 13 BMR states transparency requirements regarding the development, use and management of the benchmark by the administrator. To this end, Article 13 sets out standards with regard to the methodology for determining the benchmark. The Guidelines contain three sections: (i) on the key elements of the methodology; (ii) the elements of the internal review of the methodology; and (iii) on the information to be provided in case of a proposed material change to an administrator´s methodology.
The key elements of the methodology used to determine the benchmark should include, inter alia, a definition and description of the NSB and the market it is intended to measure, the types of input data used to determine the NSB, minimum requirements of the quality of the input data, the compositions of any panel of contributors and the criteria to determine eligibility for panel membership.
The information to be provided by an administrator of a NSB in compliance with the requirements regarding the internal review of the methodology should include at least a description of the policies and procedures relating to the internal review and approval of the methodology. In case of material changes of the methodology the information to be provided by an administrator should include at least the disclosure of the key elements of the methodology that would, in its view, be affected by the proposed material change.
Guidelines on governance and control requirements for supervised contributors (Article 16 BMR)
Article 16 BMR provides requirements for the governance and control of a supervised contributor. To this end, Article 16 sets out specific but broad requirements for the management of a contributor’s company and its systems, which serve to preserve the integrity and reliability of its input data. In addition, the Guidelines set out, inter alia, provisions on the control framework, control of submitters, the management of conflicts of interest and record-keeping requirements. All these elements are mentioned in Art. 16 BMR to ensure proper governance and control by the contributor but outlined in more detail in the Guidelines.
According to the Guidelines, the contributor´s control framework for example should include at least an effective oversight mechanism for overseeing the process for contributing input data, a policy on whistle-blowing and a procedure for detecting breaches of BMR. The measures for the management of conflicts of interest should include, inter alia, a register of material conflicts of interests. Additionally, the records to be kept with regard to the provision of input data should include, e.g., the names of the submitters.
As already mentioned in Part 1, NSB have less impact on markets than critical or significant benchmarks. Therefore, the BMR provides options for administrators of non-significant benchmarks not to apply some BMR provisions (Article 4 to 7, 11 and 13 to 15 BMR). However, an incentive to apply the provisions nonetheless may exist, for instance, the administrator does not have to maintain different internal structures and processes for its benchmarks if he administers mainly significant benchmarks.
Since some of the Guidelines concern regulations whose applicability the administrator can exclude, the Guidelines do not apply if the administrator has decided in a permissible manner not to apply the corresponding regulations. However, if the Guidelines concern regulations from which the administrator may not deviate or if he has decided not to make use of the simplifications, the Guidelines shall apply.
Kategorien English, ESMA, Regulatory Body•Schlagwörter administrator, Benchmark, Benchmark Regulation, BMR, contributor, ESMA, Guidelines, Non-significant benchmark
ESMA publishes Final Report on Guidelines on non-significant benchmarks – Part 1
Veröffentlicht am 24 Januar 2019 5 November 2019 von Dr. Verena Ritter-Döring and Charlotte Dreisigacker
What does the European Securities and Markets Authority (ESMA) regulate in the newest Guidelines on benchmarks? When is a benchmark not significant? The following article will answer these questions and more.
The regulation of benchmarks
Since January 2018, the administration, provision and use of benchmarks has been regulated by the Regulation (EU) 2016/1011 on indices used as benchmark in financial instruments and financial contracts or to measure the performance of investment funds (BMR). The BMR introduces a regime for benchmark administrators, contributors and users that ensures the accuracy and integrity of benchmarks so that they are robust, reliable, representative and suitable for the intended use by establishing rules for administrators, contributors and users of critical, significant and non-significant benchmarks. We already shared this blog post on November 22, 2018 on emergency plans, which are also part of the BMR´s regulatory regime.
ESMA Guidelines on non-significant benchmarks
On December 20, 2018, ESMA published its Final Report on the Guidelines for non-significant benchmarks (NSB) (available here), which refers to the provisions in Article 5, 11, 13 and 16 BMR. This was preceded by the consultation of the Guidelines in September 2017. The Guidelines serve to concretise the provisions of Article 5, 11, 13 and 16 BMR and provide more detailed input on how the BMR’s provisions are to be implemented, thus ultimately present ESMA’s supervisory practice.
Non-significant benchmarks
NSB are benchmarks that are neither critical nor significant. A benchmark is considered critical if it serves as a reference basis for financial instruments or contracts with a total value of at least €500 billion. A benchmark is also critical if its sudden disappearance could have considerable negative effects on the stability of the markets. Significant benchmarks are those that are used as a reference basis for financial instruments or contracts with a total value of at least €50 billion. For critical and significant benchmarks, ESMA published Draft technical standards (RTS) under the Benchmark Regulation on March 30, 2017. They were published in the Official Journal of the European Union on November 5, 2018 . Since the RTS are issued as a regulation, they apply directly in the EU member states. However, for non-significant benchmarks, ESMA is mandated to prepare Guidelines which are not directly binding in the EU member states, but are generally adopted one-to-one by the respective national supervisory authority, thus they become part of its administrative practice. If the guidelines were not to be adopted, the national supervisory authorities must announce this publicly.
The Guidelines on non-significant benchmarks set out details for four areas of the BMR: the oversight function (article 5 BMR); input data (Article 11 BMR); the transparency of methodology (Article 13 BMR); and the requirements for the governance of supervised contributors (Article 16 BMR). As a result, the broad rules of the BMR are filled in with more details that make their implementation considerably easier for the obligated parties.
In Part 1, we will look at the Guidelines on the oversight function and on input data. Part 2 will highlight the Guidelines on the transparency of methodology and the governance requirements.
Guidelines on procedures and characteristics of the oversight function (Article 5 BMR)
Article 5 BMR sets out the oversight requirements that each administrator must maintain to ensure that all aspects of the provision of its benchmarks are monitored. The Guidelines on Article 5 BMR contain different sections on the composition of the oversight function, on its internal positioning and on procedures that should govern the oversight function, as well as a non-exhaustive list of governance arrangements.
For example, the Guidelines require that the oversight function should be composed of one or more members who together have the skills and expertise appropriate to the oversight of the provision of a particular benchmark and to the responsibilities the oversight function is required to fulfill. Administrators should also consider including, as members of the oversight function, representatives from trading venues. To ensure that no conflicts of interests intervene, persons directly involved in the provision of the NSB that may be members of the oversight function should have no voting-rights. Representatives of the management body should not be members or observers of the oversight function but may be invited to attend meetings by the oversight function in a non-voting capacity.
The oversight function should constitute a part of the organisational structure of the administrator, but needs to be established separately from the management body and other governance functions. Additionally, the oversight function should have its own procedures, for example, in relation to the criteria for member selection, the election, nomination and replacement of its members and access to the documentation necessary to carry out its duties.
Guidelines on input data (Article 11 BMR)
Article 11 BMR regulates the requirements for input data provided for the determination of the benchmark. Input data is the data used to determine the benchmark and relates to the value of an underlying asset. This may include, for example, real time transaction data of the respective underlying asset.
The Guidelines contain two sections on ensuring appropriate and verifiable input data and the internal oversight and verifications procedures of a contributor to a NSB.
In order to ensure that the input data used for a benchmark is appropriate and verifiable, the administrator should have available all information necessary to check whether the submitter is authorised to contribute the input data on behalf of the contributor in accordance with Article 25 of BMR, whether the input data is provided by the contributor within the time-period prescribed by the administrator and whether the input data meets the requirements set out in the methodology of the benchmark.
The internal oversight and verification procedures of a contributor that the administrator of a NSB ensures should include procedures governing, inter alia, requested communication of information to the administrator and three levels of control functions. The first level of control should be responsible for, inter alia, the effective checking of input data prior to its contribution and the submitter´s authorisations to submit input data on behalf of the contributor. The second level of control should be responsible for establishing and maintaining whistle-blowing procedures and internal reporting of any attempt or actual manipulation of input data. The third level of control should be responsible for performing checks on the controls exercised by the other two control functions. Therefore it must be independent from the first and second control level.
As NSB have less impact on markets than critical or significant benchmarks, Article 26 BMR provides for numerous simplifications for administrators with regard to NSB. Administrators may decide not to apply some of the provisions of Article 4 to 7, 11, and 13 to 15 BMR. However, an incentive to apply the regulations may be, for example, that the administrator does not have to maintain different internal structures and processes for its benchmarks. It is not necessary to constantly check whether the NSB exceeds the threshold that makes it a significant benchmark if the requirements of a significant benchmark are consistently met.
Since some of the Guidelines concern regulations whose applicability the administrator can exclude according to Article 26 BMR, the Guidelines do not apply if the administrator has decided in a permissible manner not to apply the corresponding regulations. However, if the Guidelines concern regulations from which the administrator may not deviate or if he has decided not to make use of the simplifications in Article 26 BMR, the Guidelines shall apply.
Kategorien English, Regulatory Body•Schlagwörter administrator, Benchmark, Benchmark Regulation, BMR, contributor, Guidelines, Non-significant benchmark