Article 15 Code of conduct
1. Where a benchmark is based on input data from contributors, its administrator shall develop a code of conduct for each benchmark clearly specifying contributors' responsibilities with respect to the contribution of input data and shall ensure that such code of conduct complies with this Regulation. The administrator shall be satisfied that contributors adhere to the code of conduct on a continuous basis and at least annually and in case of changes to it. 2. The code of conduct shall include at least the following elements: (a) a clear description of the input data to be provided and the requirements necessary to ensure that input data is provided in accordance with Articles 11 and 14; (b) identification of the persons that may contribute input data to the administrator and procedures to verify the identity of a contributor and any submitters, as well as authorisation of any submitters that contribute input data on behalf of a contributor; (c) policies to ensure that a contributor provides all relevant input data; (d) the systems and controls that a contributor is required to establish, including: (i) procedures for contributing input data, including requirements for the contributor to specify whether input data is transaction data and whether input data conforms to the administrator's requirements; (ii) policies on the use of discretion in contributing input data; (iii) any requirement for the validation of input data before it is provided to the administrator; (iv) record-keeping policies; (v) reporting requirements concerning suspicious input data; (vi) requirements concerning the management of conflicts of interest. 3. Administrators may develop a single code of conduct for each family of benchmarks they provide. 4. In the event that a relevant competent authority, in the use of its powers referred to in Article 41, finds that there are elements of a code of conduct which do not comply with this Regulation, it shall notify the administrator concerned. The administrator shall adjust the code of conduct to ensure that it complies with this Regulation within 30 days of such a notification. 5. Within 15 working days from the date of application of the decision to include a critical benchmark in the list referred to in Article 20(1), 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 this Regulation. In the event that the relevant competent authority finds elements which do not comply with this Regulation, paragraph 4 of this Article shall apply. 6. ESMA shall develop draft regulatory technical standards to specify further the elements of the code of conduct referred to in paragraph 2 for different types of benchmarks, and in order to take account of developments in benchmarks and financial markets. ESMA shall take into account the different characteristics of benchmarks and contributors, in particular in terms of differences in input data and methodologies, the risks of input data of being manipulated and international convergence of supervisory practices in relation to benchmarks. ESMA shall submit those draft regulatory technical standards to the Commission by 1 April 2017. 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.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 15 Code of conduct):
1. Where a benchmark is based on input data from contributors, its administrator shall develop a code of conduct for each benchmark clearly specifying contributors' responsibilities with respect to the contribution of input data and shall ensure that such code of conduct complies with this Regulation. The administrator shall be satisfied that contributors adhere to the code of conduct on a continuous basis and at least annually and in case of changes to it. 3. Administrators may develop a single code of conduct for each family of benchmarks they provide. 4. In the event that a relevant competent authority, in the use of its powers referred to in Article 41, finds that there are elements of a code of conduct which do not comply with this Regulation, it shall notify the administrator concerned. The administrator shall adjust the code of conduct to ensure that it complies with this Regulation within 30 days of such a notification. 5. Within 15 working days from the date of application of the decision to include a critical benchmark in the list referred to in Article 20(1), 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 this Regulation. In the event that the relevant competent authority finds elements which do not comply with this Regulation, paragraph 4 of this Article shall apply. 6. ESMA shall develop draft regulatory technical standards to specify further the elements of the code of conduct referred to in paragraph 2 for different types of benchmarks, and in order to take account of developments in benchmarks and financial markets. ESMA shall take into account the different characteristics of benchmarks and contributors, in particular in terms of differences in input data and methodologies, the risks of input data of being manipulated and international convergence of supervisory practices in relation to benchmarks. ESMA shall submit those draft regulatory technical standards to the Commission by 1 April 2017. 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 16 Governance and control requirements for supervised contributors
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 referred to in Article 15; (b) the supervised contributor shall have in place a control framework that ensures the integrity, accuracy and reliability of input data and that input data is provided in accordance with this Regulation and the code of conduct referred to in Article 15. 2. A supervised contributor shall have in place 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 holding a position senior to that of the submitter; (b) appropriate training for submitters, covering at least this Regulation and Regulation (EU) No 596/2014; (c) measures for the management of conflicts of interest, including organisational separation of employees where appropriate and consideration of how to remove incentives, created by remuneration polices, to manipulate a benchmark; (d) record-keeping, for an appropriate period of time, of communications in relation to provision of input data, of all information used to enable the contributor to make each submission, and of all existing or potential conflicts of interest including, but not limited to, the contributor's exposure to financial instruments which use a benchmark as a reference; (e) record-keeping of internal and external audits. 3. Where input data relies on expert judgement, supervised contributors shall establish, in addition to the systems and controls referred to in paragraph 2, policies guiding any use of judgement or exercise of discretion and shall retain records of the rationale for any such judgement or discretion. Where proportionate, supervised contributors shall take into account the nature of the benchmark and its input data. 4. 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 paragraphs 2 and 3. 5. ESMA shall develop draft regulatory technical standards to specify further the requirements concerning governance, systems and controls, and policies set out in paragraphs 1, 2 and 3. ESMA shall take into account the different characteristics of benchmarks and supervised contributors, in particular 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 supervised contributors, and the developments in benchmarks and financial markets in light of international convergence of supervisory practices in relation to benchmarks. However, the ESMA draft regulatory technical standards shall not cover or apply to supervised contributors of non-significant benchmarks. ESMA shall submit those draft regulatory technical standards to the Commission by 1 April 2017. 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. 6. ESMA may issue guidelines in accordance with Article 16 of Regulation (EU) No 1095/2010, addressed to supervised contributors to non-significant benchmarks to specify the elements referred to in paragraph 5 of this Article.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 16 Governance and control requirements for supervised contributors):
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 referred to in Article 15; (b) the supervised contributor shall have in place a control framework that ensures the integrity, accuracy and reliability of input data and that input data is provided in accordance with this Regulation and the code of conduct referred to in Article 15. 3. Where input data relies on expert judgement, supervised contributors shall establish, in addition to the systems and controls referred to in paragraph 2, policies guiding any use of judgement or exercise of discretion and shall retain records of the rationale for any such judgement or discretion. Where proportionate, supervised contributors shall take into account the nature of the benchmark and its input data. 4. 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 paragraphs 2 and 3. 5. ESMA shall develop draft regulatory technical standards to specify further the requirements concerning governance, systems and controls, and policies set out in paragraphs 1, 2 and 3. ESMA shall take into account the different characteristics of benchmarks and supervised contributors, in particular 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 supervised contributors, and the developments in benchmarks and financial markets in light of international convergence of supervisory practices in relation to benchmarks. However, the ESMA draft regulatory technical standards shall not cover or apply to supervised contributors of non-significant benchmarks. ESMA shall submit those draft regulatory technical standards to the Commission by 1 April 2017. 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. 6. ESMA may issue guidelines in accordance with Article 16 of Regulation (EU) No 1095/2010, addressed to supervised contributors to non-significant benchmarks to specify the elements referred to in paragraph 5 of this Article.
Article 17 Regulated-data benchmarks
1. Article 11(1)(d) and (e), Article 11(2) and (3), Article 14(1) and (2), and Articles 15 and 16 shall not apply to the provision of and the contribution to regulated-data benchmarks. Article 8(1)(a) shall not apply to the provision of regulated-data benchmarks with reference to input data that are contributed entirely and directly as specified in point (24) of Article 3(1). 2. Articles 24 and 25 or Article 26 shall, as applicable, apply to the provision of, and the contribution to, regulated-data benchmarks that are used directly or indirectly within a combination of benchmarks as a reference for financial instruments or financial contracts or for measuring the performance of investment funds, having a total value of up to EUR 500 billion, on the basis of all the range of maturities or tenors of the benchmark, where applicable.
Article 18 Interest rate benchmarks
The specific requirements laid down in Annex I shall apply to the provision of, and contribution to, interest rate benchmarks in addition to, or as a substitute for, the requirements of Title II. Articles 24, 25 and 26 shall not apply to the provision of, and contribution to, interest rate benchmarks.
Article 19 Commodity benchmarks
1. The specific requirements laid down in Annex II shall apply instead of the requirements of Title II, with the exception of Article 10, to the provision of, and contribution to, commodity benchmarks, unless the benchmark in question is a regulated-data benchmark or is based on submissions by contributors the majority of which are supervised entities. Articles 24, 25 and 26 shall not apply to the provision of, and contribution to, commodity benchmarks. 2. Where a commodity benchmark is a critical benchmark and the underlying asset is gold, silver or platinum, the requirements of Title II shall apply instead of Annex II.
Article 20 Critical benchmarks
1. The Commission shall adopt implementing acts in accordance with the examination procedure referred to in Article 50(2) to establish and review at least every two years a list of benchmarks provided by administrators located within the Union which are critical benchmarks, provided that one of the following conditions is fulfilled: (a) the benchmark is used directly or indirectly within a combination of benchmarks as a reference for financial instruments or financial contracts or for measuring the performance of investment funds, having a total value of at least EUR 500 billion on the basis of all the range of maturities or tenors of the benchmark, where applicable; (b) the benchmark is based on submissions by contributors the majority of which are located in one Member State and is recognised as being critical in that Member State in accordance with the procedure laid down in paragraphs 2, 3, 4 and 5 of this Article; (c) the benchmark fulfils all of the following criteria: (i) the benchmark is used directly or indirectly within a combination of benchmarks as a reference for financial instruments or financial contracts or for measuring the performance of investment funds having a total value of at least EUR 400 billion on the basis of all the range of maturities or tenors of the benchmark, where applicable, but not exceeding the value provided for in point (a); (ii) the benchmark has no, or very few, appropriate market-led substitutes; (iii) in the event that the benchmark ceases to be provided, or is provided on the basis of input data no longer fully representative of the underlying market or economic reality or on the basis of unreliable input data, there would be significant and adverse impacts on market integrity, financial stability, consumers, the real economy, or the financing of households and businesses in one or more Member States. If a benchmark meets the criteria set out in point (c)(ii) and (iii) but does not meet the criterion set out in point (c)(i), the competent authorities of the Member States concerned together with the competent authority of the Member State where the administrator is established may agree that such benchmark should be recognised as critical under this subparagraph. In any case, the competent authority of the administrator shall consult the competent authorities of the Member States concerned. In the event of disagreement between the competent authorities, the competent authority of the administrator shall decide whether the benchmark should be recognised as critical under this subparagraph, taking into account the reasons for the disagreement. The competent authorities or, in the event of disagreement, the competent authority of the administrator, shall transmit the assessment to the Commission. After receiving the assessment, the Commission shall adopt an implementing act in accordance with this paragraph. In addition, in the event of disagreement, the competent authority of the administrator shall transmit its assessment to ESMA, which may publish an opinion. 2. Where the competent authority of a Member State referred to in point (b) of paragraph 1 considers that an administrator under its supervision provides a benchmark that should be recognised as critical, it shall notify ESMA and transmit to ESMA a documented assessment. 3. For the purposes of paragraph 2, the competent authority shall assess whether the cessation of the benchmark or its provision on the basis of input data or of a panel of contributors no longer representative of the underlying market or economic reality would have an adverse impact on market integrity, financial stability, consumers, the real economy, or the financing of households and businesses in its Member State. The competent authority shall take into consideration in its assessment: (a) the value of financial instruments and financial contracts that reference the benchmark and the value of investment funds referencing the benchmark for measuring their performance within the Member State and their relevance in terms of the total value of financial instruments and of financial contracts outstanding, and of the total value of investment funds, in the Member State; (b) the value of financial instruments and financial contracts that reference the benchmark and the value of investment funds referencing the benchmark for measuring their performance within the Member State and their relevance in terms of the gross national product of the Member State; (c) any other figure to assess on objective grounds the potential impact of the discontinuity or unreliability of the benchmark on market integrity, financial stability, consumers, the real economy, or the financing of households and businesses in the Member State. The competent authority shall review its assessment of the criticality of the benchmark at least every two years, and shall notify and transmit the new assessment to ESMA. 4. Within six weeks of receipt of the notification referred to in paragraph 2, ESMA shall issue an opinion on whether the assessment of the competent authority complies with the requirements of paragraph 3 and shall transmit such opinion to the Commission, together with the competent authority's assessment. 5. The Commission, after receiving the opinion referred to in paragraph 4, shall adopt implementing acts in accordance with paragraph 1. 6. The Commission shall be empowered to adopt delegated acts in accordance with Article 49 in order to: (a) specify how the nominal amount of financial instruments other than derivatives, the notional amount of derivatives and the net asset value of investment funds are to be assessed, including in the event of an indirect reference to a benchmark within a combination of benchmarks, in order to be compared with the thresholds referred to in paragraph 1 of this Article and in point (a) of Article 24(1); (b) review the calculation method used to determine the thresholds referred to in paragraph 1 of this Article in the light of market, price and regulatory developments as well as the appropriateness of the classification of benchmarks with a total value of financial instruments, financial contracts, or investment funds referencing them that is close to the thresholds; such review shall take place at least every two years as from 1 January 2018; (c) specify how the criteria referred to in point (c)(iii) of paragraph 1 of this Article are to be applied, taking into consideration any data which helps assess on objective grounds the potential impact of the discontinuity or unreliability of the benchmark on market integrity, financial stability, consumers, the real economy, or the financing of households and businesses in one or more Member States. Where applicable, the Commission shall take into account relevant market or technological developments.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 20 Critical benchmarks):
1a. Where ESMA considers that a benchmark fulfils all of the criteria set out in point (c) of paragraph 1, it shall submit a documented request to the Commission to recognise that benchmark as critical. After receiving that documented request, the Commission shall adopt an implementing act in accordance with paragraph 1. ESMA shall review its assessment of the criticality of the benchmark at least every two years and shall notify and transmit the assessment to the Commission. 2. Where the competent authority of a Member State referred to in point (b) of paragraph 1 considers that an administrator under its supervision provides a benchmark that should be recognised as critical, it shall notify ESMA and transmit to ESMA a documented assessment. The competent authority shall review its assessment of the criticality of the benchmark at least every two years, and shall notify and transmit the new assessment to ESMA. 4. Within six weeks of receipt of the notification referred to in paragraph 2, ESMA shall issue an opinion on whether the assessment of the competent authority complies with the requirements of paragraph 3 and shall transmit such opinion to the Commission, together with the competent authority's assessment. 5. The Commission, after receiving the opinion referred to in paragraph 4, shall adopt implementing acts in accordance with paragraph 1. 6. Where applicable, the Commission shall take into account relevant market or technological developments.
Article 21 Mandatory administration of a critical benchmark
1. If an administrator of a critical benchmark intends to cease providing such benchmark, the administrator shall: (a) immediately notify its competent authority; and (b) within four weeks of such notification submit an assessment of how the benchmark: (i) is to be transitioned to a new administrator; or (ii) is to be ceased to be provided, taking into account the procedure established in Article 28(1). During the period referred to in point (b) of the first subparagraph, the administrator shall not cease provision of the benchmark. 2. Upon receipt of the assessment of the administrator referred to in paragraph 1, the competent authority shall: (a) inform ESMA and, where applicable, the college established under Article 46; and (b) within four weeks, make its own assessment of how the benchmark is to be transitioned to a new administrator or be ceased to be provided, taking into account the procedure established in accordance with Article 28(1). During the period of time referred to in point (b) of the first subparagraph of this paragraph, the administrator shall not cease the provision of the benchmark without the written consent of the competent authority. 3. Following completion of the assessment referred to in point (b) of paragraph 2, the competent authority shall have the power to compel the administrator to continue publishing the benchmark until such time as: (a) the provision of the benchmark has been transitioned to a new administrator; (b) the benchmark can be ceased to be provided in an orderly fashion; or (c) the benchmark is no longer critical. For the purposes of the first subparagraph, the period for which the competent authority may compel the administrator to continue to publish the benchmark shall not exceed 12 months. By the end of that period, the competent authority shall review its decision to compel the administrator to continue to publish the benchmark and may, where necessary, extend the time period by an appropriate period not exceeding a further 12 months. The maximum period of mandatory administration shall not exceed 24 months in total. 4. Without prejudice to paragraph 1, in the event that the administrator of a critical benchmark is to be wound down due to insolvency proceedings, the competent authority shall make an assessment of whether and how the critical benchmark can be transitioned to a new administrator or can cease to be provided in an orderly fashion, taking into account the procedure established in accordance with Article 28(1).
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Integrated financial markets bring significant benefits to the funding of the European economy and for promoting jobs and growth on a sound and sustainable basis. To promote financial integration and market integrity while safeguarding financial stability, the EU internal market for financial services requires common rules and strong supervisory coordination. When the EU overhauled its financial system in response to the financial crisis, and in line with global efforts, it therefore introduced a Single Rulebook for financial regulation in Europe and created the European Supervisory Authorities ("ESAs"). The ESAs constitute an institutional cornerstone of the comprehensive reform package and have played a key role in ensuring that the financial markets across the EU are well regulated, strong and stable. They contribute to the development and consistent application of the Single Rulebook, solve cross-border problems, and thereby promote both regulatory and supervisory convergence. Despite the post-crisis measures, there remains significant potential to enhance regulatory and supervisory convergence in the internal market. Integrated financial markets require more integrated supervisory arrangements to function effectively, while more centralised supervisory arrangements can, in turn, foster market integration. For this reason, the EU has engaged in further integration across the broader financial sector on a sound and stable basis. In particular, the Capital Markets Union ("CMU") has been launched so a s to lay the foundations for a fully functional internal market for capital markets. In this context, the Five Presidents' Report on Completing Europe's Economic and Monetary Union of June 2015 1 highlighted the need to strengthen the EU supervisory framew ork, leading ultimately to a single capital-markets supervisor. More recently, the Commission Reflection Paper on the deepening of the Economic and Monetary Union 2 suggests that a review of the EU supervisory framework – in particular of the European Secu rities and Markets Authority ("ESMA") - should deliver the first steps towards such a single supervisor by 2019. The Reflection Paper also called for completing the Financial Union - comprising both a Banking Union and a Capital Markets Union– by 2019 so a s to guarantee the integrity of the euro and improve the functioning of the euro area and the EU as a whole. Global financial markets are strongly interconnected, and the EU's regulatory framework is largely based on international standards agreed in the w ake of the financial crisis notably among G20 countries. As the EU is striving to accelerate the completion of the CMU, it is therefore essential that EU supervisory arrangements continue to develop in a manner which allows to reap the full potential of i nternationally integrated financial markets while ensuring that cross-border risks between the EU and the rest of the world can be monitored and managed effectively. The ESAs have a key role to play in this regard. Finally, the decision of the United Kingdom to leave the EU reinforces these challenges for supervisory arrangements within the remaining EU27. The future departure of the EU’s currently largest financial centre means that EU27 capital markets need to develop further and supervisory arrangements must be strengthened to ensure that financial markets continue to support the economy on an adequate and sound basis. The objective of the present proposal is to adjust and upgrade the ESAs framework to ensure they can assume an enhanced responsibility for financial market supervision. The ESAs must be adequately equipped in terms of powers, governance and funding. First, where existing powers of the ESAs have proven partially insufficient and unclearly defined, for example as regards the consistent application of EU law, the drafting of technical advice or the provision of ongoing support to equivalence decisions, they must be strengthened and improved. The current scope of the ESAs' mandate must also be reconsidered in light of the policy objectives of the CMU. More common direct supervision in targeted areas is necessary to ensure more consistent supervisory practices and implementation of EU financial services rules. The 2017 review of the ESA Regulations concluded that the supervision of certain activities and entities with particular importance for the Union as a whole or with a significant degree of cross-border business should be carried out by the ESAs instead of by national competent authorities. Similarly, the ESAs should be more involved in the authorisation and supervision of entities from non-EU countries that are active in the Union. Second, this proposal aims at establishing a more effective governance of the ESAs. The incentive structure in the decision-making process of the ESAs as it stands today leads to the absence of decisions in particular in the area of regulatory convergence and supervisory convergence, or promotes decisions that are predominantly oriented towards national instead of broader EU interests. This reflects, to so me extent, an inherent tension between the European mandate of the ESAs and the national mandate of the competent authorities that are members of the ESA Boards. 3 This position is not well aligned with the objective of supervisory convergence. A greater role for the ESAs in deepening financial integration or strengthening the stability of the internal market will also require more effective convergence powers. 4 Third, the ESAs need an appropriate funding base which allows them to allocate resources in relation to their needs to fulfil their objective. Current budget arrangements constrain and will continue to constrain the ESAs' activities, as Member States for different reasons might be unwilling to increase national contributions further. The present proposal sets out specific amendments to the ESA Regulations 5 and various sector acts 6 to reinforce the powers, governance and funding framework of the ESAs, as these are the areas which need to be reinforced to allow the ESAs to meet the challenges outlin ed above. The impact assessment report accompanying this proposal considers the costs and benefits of these amendments. It sets out a number of options of measures intended to enhance the powers of the ESAs at EU level, improve their governance (including decision- making), and to ensure that their funding framework is sustainable and commensurate with current and future tasks. The impact assessment provides comprehensive evidence that the proposed amendments contribute effectively to reinforcing the ESA framework and thereby to the overall stability of the EU financial system, while keeping costs to the EU General Budget and stakeholders at a minimum. The proposed amendments also contribute to the further development and deepening of the CMU, in line with the political priorities of the Commission. 
Revised version (Article 21 Mandatory administration of a critical benchmark):
1. If an administrator of a critical benchmark intends to cease providing such benchmark, the administrator shall: (a) immediately notify its competent authority; and (b) within four weeks of such notification submit an assessment of how the benchmark: (i) is to be transitioned to a new administrator; or (ii) is to be ceased to be provided, taking into account the procedure established in Article 28(1). During the period referred to in point (b) of the first subparagraph, the administrator shall not cease provision of the benchmark. 2. Upon receipt of the assessment of the administrator referred to in paragraph 1, the competent authority shall: (a) inform ESMA and, where applicable, the college established under Article 46; and (b) within four weeks, make its own assessment of how the benchmark is to be transitioned to a new administrator or be ceased to be provided, taking into account the procedure established in accordance with Article 28(1). During the period of time referred to in point (b) of the first subparagraph of this paragraph, the administrator shall not cease the provision of the benchmark without the written consent of the competent authority. 3. Following completion of the assessment referred to in point (b) of paragraph 2, the competent authority shall have the power to compel the administrator to continue publishing the benchmark until such time as: (a) the provision of the benchmark has been transitioned to a new administrator; (b) the benchmark can be ceased to be provided in an orderly fashion; or (c) the benchmark is no longer critical. For the purposes of the first subparagraph, the period for which the competent authority may compel the administrator to continue to publish the benchmark shall not exceed 12 months. By the end of that period, the competent authority shall review its decision to compel the administrator to continue to publish the benchmark. The competent authority may, where necessary, extend that period by an appropriate period not exceeding 12 months. The maximum period of mandatory administration shall not exceed five years. 4. Without prejudice to paragraph 1, in the event that the administrator of a critical benchmark is to be wound down due to insolvency proceedings, the competent authority shall make an assessment of whether and how the critical benchmark can be transitioned to a new administrator or can cease to be provided in an orderly fashion, taking into account the procedure established in accordance with Article 28(1).
Article 22 Mitigation of market power of critical benchmark administrators
Without prejudice to the application of Union competition law, when providing a critical benchmark, the administrator shall take adequate steps to ensure that licences of, and information relating to, the benchmark are provided to all users on a fair, reasonable, transparent and non-discriminatory basis.
Article 23 Mandatory contribution to a critical benchmark
1. This Article shall apply to critical benchmarks based on submissions by contributors the majority of which are supervised entities. 2. Administrators of one or more critical benchmarks shall, every two years, submit to their competent authority an assessment of the capability of each critical benchmark they provide to measure the underlying market or economic reality. 3. If a supervised contributor to a critical benchmark intends to cease contributing input data, it shall promptly notify in writing the benchmark administrator, which shall inform without delay its competent authority. Where the supervised contributor is located in another Member State, the competent authority of the administrator shall inform, without delay, the competent authority of that contributor. The benchmark administrator shall submit to its competent authority an assessment of the implications on the capability of the benchmark to measure the underlying market or economic reality as soon as possible but no later than 14 days after the notification made by the supervised contributor. 4. Upon receipt of an assessment of the benchmark administrator referred to in paragraphs 2 and 3 of this Article and on the basis of such assessment, the competent authority of the administrator shall promptly inform ESMA and, where applicable, the college established under Article 46, and make its own assessment on the capability of the benchmark to measure the underlying market and economic reality, taking into account the administrator's procedure for cessation of the benchmark established in accordance with Article 28(1). 5. From the date on which the competent authority of the administrator is notified of the intention of a contributor to cease contributing input data and until such time as the assessment referred to in paragraph 4 is complete, it shall have the power to require the contributors which made the notification in accordance with paragraph 3 to continue contributing input data, in any event for a period of no more than four weeks, without imposing an obligation on supervised entities to either trade or commit to trade. 6. In the event that the competent authority, after the period specified in paragraph 5 and on the basis of its own assessment referred to in paragraph 4, considers that the representativeness of a critical benchmark is put at risk, it shall have the power to: (a) require supervised entities selected in accordance with paragraph 7 of this Article, including entities that are not yet contributors to the relevant critical benchmark, to contribute input data to the administrator in accordance with the administrator's methodology, the code of conduct referred to in Article 15 and other rules. Such requirement shall be in place for an appropriate period of time not exceeding 12 months from the date on which the initial decision requiring mandatory contribution was taken pursuant to paragraph 5 or, for those entities that are not yet contributors, from the date on which the decision requiring mandatory contribution is taken under this point; (b) extend the period of mandatory contribution by an appropriate period of time not exceeding 12 months, following a review under paragraph 9 of any measures adopted pursuant to point (a) of this paragraph; (c) determine the form in which, and the time by which, any input data is to be contributed without imposing an obligation on supervised entities to either trade or commit to trade; (d) require the administrator to change the methodology, the code of conduct referred to in Article 15 or other rules of the critical benchmark. The maximum period of mandatory contribution under points (a) and (b) of the first subparagraph shall not exceed 24 months in total. 7. For the purposes of paragraph 6, supervised entities that are to be required to contribute input data shall be selected by the competent authority of the administrator, with the close cooperation of the competent authorities of the supervised entities, on the basis of the size of the supervised entity's actual and potential participation in the market that the benchmark intends to measure. 8. The competent authority of a supervised contributor that has been required to contribute to a benchmark through measures taken in accordance with point (a), (b) or (c) of paragraph 6 shall cooperate with the competent authority of the administrator in the enforcement of such measures. 9. By the end of the period referred to in point (a) of the first subparagraph of paragraph 6, the competent authority of the administrator shall review the measures adopted under paragraph 6. It shall revoke any of them if it considers that: (a) the contributors are likely to continue contributing input data for at least one year if the measure were revoked, which shall be evidenced by at least: (i) 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 measure were revoked; (ii) 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 contribution has been revoked; (b) the provision of the benchmark is able to continue once the contributors mandated to contribute input data have ceased contributing; (c) 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 transitioning to this benchmark; or (d) no appropriate alternative contributors can be identified and the cessation of contributions from the relevant supervised entities would weaken the benchmark to such an extent to require the cessation of the benchmark. 10. In the event that a critical benchmark is to be ceased to be provided, each supervised contributor to that benchmark shall continue to contribute input data for a period of time determined by the competent authority, but not exceeding the maximum 24-month period laid down in the second subparagraph of paragraph 6. 11. The administrator shall notify the relevant competent authority in the event that any contributors breach the requirements set out in paragraph 6 as soon as reasonably possible. 12. In the event that a benchmark is recognised as critical in accordance with the procedure laid down in Article 20(2), (3), (4) and (5), the competent authority of the administrator shall have the power to require input data in accordance with paragraph 5, and points (a), (b) and (c) of paragraph 6, of this Article only from supervised contributors located in its Member State.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 23 Mandatory contribution to a critical benchmark):
1. This Article shall apply to critical benchmarks based on submissions by contributors the majority of which are supervised entities. 2. Administrators of one or more critical benchmarks shall, every two years, submit to their competent authority an assessment of the capability of each critical benchmark they provide to measure the underlying market or economic reality. 3. A supervised contributor to a critical benchmark that intends to cease contributing input data shall promptly notify the administrator thereof in writing. The administrator shall thereupon inform without undue delay its competent authority. The competent authority of the critical benchmark administrator shall inform the competent authority of that supervised contributor, and where applicable ESMA, thereof without undue delay. The administrator shall submit to its competent authority an assessment of the implications on the capability of the critical benchmark to measure the underlying market or economic reality, as soon as possible but no later than 14 days after the notification made by the supervised contributor. 4. Upon receipt of the assessment referred to in paragraphs 2 and 3 of this Article, the competent authority of the administrator shall, where applicable, promptly inform ESMA or the college established under Article 46 and shall on the basis of that assessment make its own assessment of the capability of the benchmark to measure the underlying market and economic reality, taking into account the administrator’s procedure for cessation of the benchmark established in accordance with Article 28(1). 5. From the date on which the competent authority of the administrator is notified of the intention of a contributor to cease contributing input data and until such time as the assessment referred to in paragraph 4 is complete, it shall have the power to require the contributors which made the notification in accordance with paragraph 3 to continue contributing input data, in any event for a period of no more than four weeks, without imposing an obligation on supervised entities to either trade or commit to trade. The maximum period of mandatory contribution under points (a) and (b) of the first subparagraph shall not exceed five years. 7. For the purposes of paragraph 6, supervised entities that are to be required to contribute input data shall be selected by the competent authority of the administrator, with the close cooperation of the competent authorities of the supervised entities, on the basis of the size of the supervised entity's actual and potential participation in the market that the benchmark intends to measure. 10. In the event that a critical benchmark is to be ceased to be provided, each supervised contributor to that benchmark shall contribute input data for a period of time determined by the competent authority, but not exceeding the maximum five year period laid down in the second subparagraph of paragraph 6. 11. The administrator shall notify the relevant competent authority in the event that any contributors breach the requirements set out in paragraph 6 as soon as reasonably possible. 12. In the event that a benchmark is recognised as critical in accordance with the procedure laid down in Article 20(2), (3), (4) and (5), the competent authority of the administrator shall have the power to require input data in accordance with paragraph 5, and points (a), (b) and (c) of paragraph 6, of this Article only from supervised contributors located in its Member State.
Article 24 Significant benchmarks
1. A benchmark which does not fulfil any of the conditions laid down in Article 20(1) is significant when: (a) it is used directly or indirectly within a combination of benchmarks as a reference for financial instruments or financial contracts or for measuring the performance of investments funds having a total average value of at least EUR 50 billion on the basis of all the range of maturities or tenors of the benchmark, where applicable, over a period of six months; or (b) it has no or very few appropriate market-led substitutes and, in the event that the benchmark ceases to be provided or is provided on the basis of input data no longer fully representative of the underlying market or economic reality or unreliable input data, there would be a significant and adverse impact on market integrity, financial stability, consumers, the real economy or the financing of households or businesses in one or more Member States. 2. The Commission shall be empowered to adopt delegated acts in accordance with Article 49 in order to review the calculation method used to determine the threshold referred to in point (a) of paragraph 1 of this Article in the light of market, price and regulatory developments as well as the appropriateness of the classification of benchmarks with a total value of financial instruments, financial contracts or investment funds referencing them that is close to that threshold. Such review shall take place at least every two years as from 1 January 2018. 3. An administrator shall immediately notify its competent authority when its significant benchmark falls below the threshold mentioned in point (a) of paragraph 1.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 24 Significant benchmarks):
2. The Commission shall be empowered to adopt delegated acts in accordance with Article 49 in order to review the calculation method used to determine the threshold referred to in point (a) of paragraph 1 of this Article in the light of market, price and regulatory developments as well as the appropriateness of the classification of benchmarks with a total value of financial instruments, financial contracts or investment funds referencing them that is close to that threshold. Such review shall take place at least every two years as from 1 January 2018. 3. An administrator shall immediately notify its competent authority when its significant benchmark falls below the threshold mentioned in point (a) of paragraph 1.
Article 25 Exemptions from specific requirements for significant benchmarks
1. An administrator may choose not to apply Article 4(2), points (c), (d) and (e) of Article 4(7), point (b) of Article 11(3) or Article 15(2) with respect to its significant benchmark where that administrator considers that the application of one or more of those provisions would be disproportionate taking into account the nature or impact of the benchmark or the size of the administrator. 2. In the event that an administrator chooses not to apply one or more of the provisions referred to in paragraph 1, it shall immediately notify the competent authority and provide it with all relevant information confirming the administrator's assessment that the application of one or more of those provisions would be disproportionate taking into account the nature or impact of the benchmarks or the size of the administrator. 3. A competent authority may decide that the administrator of a significant benchmark is nevertheless to apply one or more of the requirements laid down in Article 4(2), points (c), (d) and (e) of Article 4(7), point (b) of Article 11(3) and Article 15(2) if it considers that it would be appropriate taking into account the nature or the impact of the benchmarks or the size of the administrator. In its assessment, the competent authority shall, based on the information provided by the administrator, take into account the following criteria: (a) the vulnerability of the benchmark to manipulation; (b) the nature of the input data; (c) the level of conflicts of interest; (d) the degree of discretion of the administrator; (e) the impact of the benchmark on markets; (f) the nature, scale and complexity of the provision of the benchmark; (g) the importance of the benchmark to financial stability; (h) the value of financial instruments, financial contracts or investment funds that reference the benchmark; (i) the administrator's size, organisational form or structure. 4. Within 30 days of receipt of a notification from an administrator under paragraph 2, the competent authority shall notify that administrator of its decision to apply an additional requirement pursuant to paragraph 3. In the event that the notification to the competent authority is made during the course of an authorisation or registration procedure, the deadlines set out in Article 34 shall apply. 5. When exercising its supervisory powers in accordance with Article 41, a competent authority shall regularly review whether its assessment pursuant to paragraph 3 of this Article is still valid. 6. If a competent authority finds, on reasonable grounds, that the information submitted to it pursuant to paragraph 2 of this Article is incomplete or that supplementary information is needed, the 30-day time limit referred to in paragraph 4 of this Article shall apply only from the date on which such complementary information is provided by the administrator, unless the deadlines of Article 34 apply pursuant to paragraph 4 of this Article. 7. Where an administrator of a significant benchmark does not comply with one or more of the requirements laid down in Article 4(2), points (c), (d) and (e) of Article 4(7), point (b) of Article 11(3) and Article 15(2), it shall publish and maintain a compliance statement that clearly states why it is appropriate for that administrator not to comply with those provisions. 8. ESMA shall develop draft implementing technical standards to develop a template for the compliance statement referred to in paragraph 7. ESMA shall submit the draft implementing technical standards referred to in the first subparagraph to the Commission by 1 April 2017. 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 (EU) No 1095/2010. 9. ESMA shall develop draft regulatory technical standards to specify further the criteria referred to in paragraph 3. ESMA shall submit those draft regulatory technical standards to the Commission by 1 April 2017. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with procedure laid down in Articles 10 to 14 of Regulation (EU) No 1095/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 25 Exemptions from specific requirements for significant benchmarks):
2. In the event that an administrator chooses not to apply one or more of the provisions referred to in paragraph 1, it shall immediately notify the competent authority and provide it with all relevant information confirming the administrator's assessment that the application of one or more of those provisions would be disproportionate taking into account the nature or impact of the benchmarks or the size of the administrator. 4. Within 30 days of receipt of a notification from an administrator under paragraph 2, the competent authority shall notify that administrator of its decision to apply an additional requirement pursuant to paragraph 3. In the event that the notification to the competent authority is made during the course of an authorisation or registration procedure, the deadlines set out in Article 34 shall apply. 5. When exercising its supervisory powers in accordance with Article 41, a competent authority shall regularly review whether its assessment pursuant to paragraph 3 of this Article is still valid. 6. If a competent authority finds, on reasonable grounds, that the information submitted to it pursuant to paragraph 2 of this Article is incomplete or that supplementary information is needed, the 30-day time limit referred to in paragraph 4 of this Article shall apply only from the date on which such complementary information is provided by the administrator, unless the deadlines of Article 34 apply pursuant to paragraph 4 of this Article. 7. Where an administrator of a significant benchmark does not comply with one or more of the requirements laid down in Article 4(2), points (c), (d) and (e) of Article 4(7), point (b) of Article 11(3) and Article 15(2), it shall publish and maintain a compliance statement that clearly states why it is appropriate for that administrator not to comply with those provisions. 8. ESMA shall develop draft implementing technical standards to develop a template for the compliance statement referred to in paragraph 7. ESMA shall submit the draft implementing technical standards referred to in the first subparagraph to the Commission by 1 April 2017. 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 (EU) No 1095/2010. 9. ESMA shall develop draft regulatory technical standards to specify further the criteria referred to in paragraph 3. ESMA shall submit those draft regulatory technical standards to the Commission by 1 April 2017. Power is delegated to the Commission to adopt the regulatory technical standards referred to in the first subparagraph in accordance with procedure laid down in Articles 10 to 14 of Regulation (EU) No 1095/2010.
Article 26 Non-significant benchmarks
1. An administrator may choose not to apply Articles 4(2), points (c), (d) and (e) of Article 4(7), Articles 4(8), 5(2), 5(3), 5(4), 6(1), 6(3), 6(5), 7(2), point (b) of Article 11(1), points (b) and (c) of Article 11(2), and Articles 11(3), 13(2), 14(2), 15(2), 16(2) and (3) with respect to its non-significant benchmarks. 2. An administrator shall immediately notify its competent authority when the administrator's non-significant benchmark exceeds the threshold mentioned in point (a) of Article 24(1). In that case, it shall comply with the requirements applicable to significant benchmarks within three months. 3. Where an administrator of a non-significant benchmark chooses not to apply one or more of the provisions referred to in paragraph 1, it shall publish and maintain a compliance statement which shall clearly state why it is appropriate for that administrator not to comply with those provisions. The administrator shall provide the compliance statement to its competent authority. 4. The relevant competent authority shall review the compliance statement referred to in paragraph 3 of this Article. The competent authority may also request additional information from the administrator in respect of its non-significant benchmarks in accordance with Article 41 and may require changes to ensure compliance with this Regulation. 5. ESMA shall develop draft implementing technical standards to develop a template for the compliance statement referred to in paragraph 3. ESMA shall submit the draft implementing technical standards referred to in the first subparagraph to the Commission by 1 April 2017. 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 (EU) No 1095/2010.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 26 Non-significant benchmarks):
1. An administrator may choose not to apply Articles 4(2), points (c), (d) and (e) of Article 4(7), Articles 4(8), 5(2), 5(3), 5(4), 6(1), 6(3), 6(5), 7(2), point (b) of Article 11(1), points (b) and (c) of Article 11(2), and Articles 11(3), 13(2), 14(2), 15(2), 16(2) and (3) with respect to its non-significant benchmarks. 2. An administrator shall immediately notify its competent authority when the administrator's non-significant benchmark exceeds the threshold mentioned in point (a) of Article 24(1). In that case, it shall comply with the requirements applicable to significant benchmarks within three months. 3. Where an administrator of a non-significant benchmark chooses not to apply one or more of the provisions referred to in paragraph 1, it shall publish and maintain a compliance statement which shall clearly state why it is appropriate for that administrator not to comply with those provisions. The administrator shall provide the compliance statement to its competent authority. 4. The relevant competent authority shall review the compliance statement referred to in paragraph 3 of this Article. The competent authority may also request additional information from the administrator in respect of its non-significant benchmarks in accordance with Article 41 and may require changes to ensure compliance with this Regulation. 5. ESMA shall develop draft implementing technical standards to develop a template for the compliance statement referred to in paragraph 3. ESMA shall submit the draft implementing technical standards referred to in the first subparagraph to the Commission by 1 April 2017. 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 (EU) No 1095/2010. 6. ESMA shall develop draft regulatory technical standards to specify the criteria under which competent authorities may require changes to the compliance statement as referred to in paragraph 4. ESMA shall submit those draft regulatory technical standards to the Commission by 1 October 2020. Power is delegated to the Commission to supplement this Regulation by adopting the regulatory technical standards referred to in the first subparagraph in accordance with Articles 10 to 14 of Regulation (EU) No 1095/2010.
Article 27 Benchmark statement
1. Within two weeks of the inclusion of an administrator in the register referred to in Article 36, the administrator shall publish, by means that ensure fair and easy access, a benchmark statement for each benchmark or, where applicable, for each family of benchmarks, that may be used in the Union in accordance with Article 29. Where that administrator begins providing a new benchmark or family of benchmarks that may be used in the Union in accordance with Article 29, the administrator shall publish, within two weeks and by means that ensure a fair and easy access, a benchmark statement for each new benchmark or, where applicable, family of benchmarks. The administrator shall review and, where necessary, update the benchmark statement for each benchmark or family of benchmarks in the event of any changes to the information to be provided under this Article and at least every two years. The benchmark statement shall: (a) clearly and unambiguously define the market or economic reality measured by the benchmark and the circumstances in which such measurement may become unreliable; (b) lay down technical specifications that clearly and unambiguously identify the elements of the calculation of the benchmark in relation to which discretion may be exercised, the criteria applicable to the exercise of such discretion and the position of the persons that can exercise discretion, and how such discretion may be subsequently evaluated; (c) provide 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 (d) advise users that changes to, or the cessation of, the benchmark may have an impact upon the financial contracts and financial instruments that reference the benchmark or the measurement of the performance of investment funds. 2. A benchmark statement shall contain at least: (a) the definitions for all key terms relating to the benchmark; (b) the rationale for adopting the benchmark 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 minimum data needed to determine a benchmark, 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 judgement or discretion by the administrator or any contributors, to ensure consistency in the use of such judgement or discretion; (e) the procedures which govern the determination of the benchmark 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; (f) the procedures for dealing with errors in input data or in the determination of the benchmark, including when a re-determination of the benchmark is required; and (g) the identification of potential limitations of the benchmark, including its operation in illiquid or fragmented markets and the possible concentration of inputs. 3. ESMA shall develop draft regulatory technical standards to specify further the contents of a benchmark statement and the cases in which an update of such statement is required. ESMA shall distinguish between the different types of benchmarks and sectors as set out in this Regulation and shall take into account the principle of proportionality. ESMA shall submit those draft regulatory technical standards to the Commission by 1 April 2017. 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.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Integrated financial markets bring significant benefits to the funding of the European economy and for promoting jobs and growth on a sound and sustainable basis. To promote financial integration and market integrity while safeguarding financial stability, the EU internal market for financial services requires common rules and strong supervisory coordination. When the EU overhauled its financial system in response to the financial crisis, and in line with global efforts, it therefore introduced a Single Rulebook for financial regulation in Europe and created the European Supervisory Authorities ("ESAs"). The ESAs constitute an institutional cornerstone of the comprehensive reform package and have played a key role in ensuring that the financial markets across the EU are well regulated, strong and stable. They contribute to the development and consistent application of the Single Rulebook, solve cross-border problems, and thereby promote both regulatory and supervisory convergence. Despite the post-crisis measures, there remains significant potential to enhance regulatory and supervisory convergence in the internal market. Integrated financial markets require more integrated supervisory arrangements to function effectively, while more centralised supervisory arrangements can, in turn, foster market integration. For this reason, the EU has engaged in further integration across the broader financial sector on a sound and stable basis. In particular, the Capital Markets Union ("CMU") has been launched so a s to lay the foundations for a fully functional internal market for capital markets. In this context, the Five Presidents' Report on Completing Europe's Economic and Monetary Union of June 2015 1 highlighted the need to strengthen the EU supervisory framew ork, leading ultimately to a single capital-markets supervisor. More recently, the Commission Reflection Paper on the deepening of the Economic and Monetary Union 2 suggests that a review of the EU supervisory framework – in particular of the European Secu rities and Markets Authority ("ESMA") - should deliver the first steps towards such a single supervisor by 2019. The Reflection Paper also called for completing the Financial Union - comprising both a Banking Union and a Capital Markets Union– by 2019 so a s to guarantee the integrity of the euro and improve the functioning of the euro area and the EU as a whole. Global financial markets are strongly interconnected, and the EU's regulatory framework is largely based on international standards agreed in the w ake of the financial crisis notably among G20 countries. As the EU is striving to accelerate the completion of the CMU, it is therefore essential that EU supervisory arrangements continue to develop in a manner which allows to reap the full potential of i nternationally integrated financial markets while ensuring that cross-border risks between the EU and the rest of the world can be monitored and managed effectively. The ESAs have a key role to play in this regard. Finally, the decision of the United Kingdom to leave the EU reinforces these challenges for supervisory arrangements within the remaining EU27. The future departure of the EU’s currently largest financial centre means that EU27 capital markets need to develop further and supervisory arrangements must be strengthened to ensure that financial markets continue to support the economy on an adequate and sound basis. The objective of the present proposal is to adjust and upgrade the ESAs framework to ensure they can assume an enhanced responsibility for financial market supervision. The ESAs must be adequately equipped in terms of powers, governance and funding. First, where existing powers of the ESAs have proven partially insufficient and unclearly defined, for example as regards the consistent application of EU law, the drafting of technical advice or the provision of ongoing support to equivalence decisions, they must be strengthened and improved. The current scope of the ESAs' mandate must also be reconsidered in light of the policy objectives of the CMU. More common direct supervision in targeted areas is necessary to ensure more consistent supervisory practices and implementation of EU financial services rules. The 2017 review of the ESA Regulations concluded that the supervision of certain activities and entities with particular importance for the Union as a whole or with a significant degree of cross-border business should be carried out by the ESAs instead of by national competent authorities. Similarly, the ESAs should be more involved in the authorisation and supervision of entities from non-EU countries that are active in the Union. Second, this proposal aims at establishing a more effective governance of the ESAs. The incentive structure in the decision-making process of the ESAs as it stands today leads to the absence of decisions in particular in the area of regulatory convergence and supervisory convergence, or promotes decisions that are predominantly oriented towards national instead of broader EU interests. This reflects, to so me extent, an inherent tension between the European mandate of the ESAs and the national mandate of the competent authorities that are members of the ESA Boards. 3 This position is not well aligned with the objective of supervisory convergence. A greater role for the ESAs in deepening financial integration or strengthening the stability of the internal market will also require more effective convergence powers. 4 Third, the ESAs need an appropriate funding base which allows them to allocate resources in relation to their needs to fulfil their objective. Current budget arrangements constrain and will continue to constrain the ESAs' activities, as Member States for different reasons might be unwilling to increase national contributions further. The present proposal sets out specific amendments to the ESA Regulations 5 and various sector acts 6 to reinforce the powers, governance and funding framework of the ESAs, as these are the areas which need to be reinforced to allow the ESAs to meet the challenges outlin ed above. The impact assessment report accompanying this proposal considers the costs and benefits of these amendments. It sets out a number of options of measures intended to enhance the powers of the ESAs at EU level, improve their governance (including decision- making), and to ensure that their funding framework is sustainable and commensurate with current and future tasks. The impact assessment provides comprehensive evidence that the proposed amendments contribute effectively to reinforcing the ESA framework and thereby to the overall stability of the EU financial system, while keeping costs to the EU General Budget and stakeholders at a minimum. The proposed amendments also contribute to the further development and deepening of the CMU, in line with the political priorities of the Commission. 
Revised version (Article 27 Benchmark statement):
1. Within two weeks of the inclusion of an administrator in the register referred to in Article 36, the administrator shall publish, by means that ensure fair and easy access, a benchmark statement for each benchmark or, where applicable, for each family of benchmarks, that may be used in the Union in accordance with Article 29. Where that administrator begins providing a new benchmark or family of benchmarks that may be used in the Union in accordance with Article 29, the administrator shall publish, within two weeks and by means that ensure a fair and easy access, a benchmark statement for each new benchmark or, where applicable, family of benchmarks. The administrator shall review and, where necessary, update the benchmark statement for each benchmark or family of benchmarks in the event of any changes to the information to be provided under this Article and at least every two years. The benchmark statement shall: (a) clearly and unambiguously define the market or economic reality measured by the benchmark and the circumstances in which such measurement may become unreliable; (b) lay down technical specifications that clearly and unambiguously identify the elements of the calculation of the benchmark in relation to which discretion may be exercised, the criteria applicable to the exercise of such discretion and the position of the persons that can exercise discretion, and how such discretion may be subsequently evaluated; (c) provide 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 (d) advise users that changes to, or the cessation of, the benchmark may have an impact upon the financial contracts and financial instruments that reference the benchmark or the measurement of the performance of investment funds. 2. A benchmark statement shall contain at least: (a) the definitions for all key terms relating to the benchmark; (b) the rationale for adopting the benchmark 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 minimum data needed to determine a benchmark, 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 judgement or discretion by the administrator or any contributors, to ensure consistency in the use of such judgement or discretion; (e) the procedures which govern the determination of the benchmark 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; (f) the procedures for dealing with errors in input data or in the determination of the benchmark, including when a re-determination of the benchmark is required; and (g) the identification of potential limitations of the benchmark, including its operation in illiquid or fragmented markets and the possible concentration of inputs. 2a. By 30 April 2020, for each of the requirements referred to in paragraph 2, the benchmark statement shall contain an explanation of how ESG factors are reflected in each benchmark or family of benchmarks provided and published. For those benchmarks or families of benchmarks that do not pursue ESG objectives, it shall be sufficient for benchmark administrators to clearly state in the benchmark statement that they do not pursue such objectives. Where no EU Climate Transition Benchmark or EU Paris-aligned Benchmark is available in the portfolio of that individual benchmark administrator, or the individual benchmark administrator has no benchmarks that pursue ESG objectives or take into account ESG factors, this shall be stated in the benchmark statements of all benchmarks provided by that administrator. For significant equity and bond benchmarks, as well as for EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks, benchmark administrators shall disclose in their benchmark statements details on whether or not and to what extent a degree of overall alignment with the target of reducing carbon emissions or the attainment of the objectives of the Paris Agreement is ensured in accordance with the disclosure rules for financial products in Article 9(3) of Regulation (EU) 2019/2088 of the European Parliament and of the Council ( 12 ). By 31 December 2021, benchmark administrators shall, for each benchmark or, where applicable, each family of benchmarks, with the exception of interest rate and foreign exchange benchmarks, include in their benchmark statement an explanation of how their methodology aligns with the target of carbon emission reductions or attains the objectives of the Paris Agreement. 2b. The Commission is empowered to adopt delegated acts in accordance with Article 49 to supplement this Regulation by further specifying the information to be provided in the benchmark statement pursuant to paragraph 2a of this Article, as well as the standard format to be used for references to ESG factors to enable market participants to make well-informed choices and to ensure the technical feasibility of compliance with that paragraph. 3. ESMA shall develop draft regulatory technical standards to specify further the contents of a benchmark statement and the cases in which an update of such statement is required. ESMA shall distinguish between the different types of benchmarks and sectors as set out in this Regulation and shall take into account the principle of proportionality. ESMA shall submit those draft regulatory technical standards to the Commission by 1 April 2017. 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 28 Changes to and cessation of a benchmark
1. An administrator shall publish, together with the benchmark statement referred to in Article 27, a procedure concerning the actions to be taken by the administrator in the event of changes to or the cessation of a benchmark which may be used in the Union in accordance with Article 29(1). The procedure may be drafted, where applicable, for families of benchmarks and shall be updated and published whenever a material change occurs. 2. Supervised entities other than an administrator as referred to in paragraph 1 that use a benchmark shall produce and maintain robust written plans setting out the actions that they would take in the event that a benchmark materially changes or ceases to be provided. Where feasible and appropriate, such plans shall nominate one or several alternative benchmarks that could be referenced to substitute the benchmarks no longer provided, indicating why such benchmarks would be suitable alternatives. The supervised entities shall, upon request, provide the relevant competent authority with those plans and any updates and shall reflect them in the contractual relationship with clients.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 28 Changes to and cessation of a benchmark):
1. An administrator shall publish, together with the benchmark statement referred to in Article 27, a procedure concerning the actions to be taken by the administrator in the event of changes to or the cessation of a benchmark which may be used in the Union in accordance with Article 29(1). The procedure may be drafted, where applicable, for families of benchmarks and shall be updated and published whenever a material change occurs. 2. Supervised entities other than an administrator as referred to in paragraph 1 that use a benchmark shall produce and maintain robust written plans setting out the actions that they would take in the event that a benchmark materially changes or ceases to be provided. Where feasible and appropriate, such plans shall designate one or several alternative benchmarks that could be referenced to substitute the benchmarks that would no longer be provided, indicating the reasons for the suitability of such alternative benchmarks. The supervised entities shall, upon request and without undue delay, provide the relevant competent authority with those plans and any updates and shall reflect them in their contractual relationship with clients.
Article 29 Use of a benchmark
1. A supervised entity may use a benchmark or a combination of benchmarks in the Union if the benchmark is provided by an administrator located in the Union and included in the register referred to in Article 36 or is a benchmark which is included in the register referred to in Article 36. 2. Where the object of a prospectus to be published under Directive 2003/71/EC or Directive 2009/65/EC is transferable securities or other investment products that reference a benchmark, the issuer, offeror, or person asking for admission to trade on a regulated market shall ensure that the prospectus also includes clear and prominent information stating whether the benchmark is provided by an administrator included in the register referred to in Article 36 of this Regulation.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Under the heading “An Economy that Works for People”, the Commission Work Programme for 2020 provides for a review of its regulation on financial benchmarks, the “Benchmark Regulation” (“BMR”). Financial benchmarks are indices by reference to which the amount payable under a financial instrument or a financial contract or the value of a financial instrument is determined. By setting out governance and data quality standards for benchmarks that are referenced in financial contracts, the Benchmark Regulation aims to strengthen the trust of capital market participants in indices used as benchmarks in the Union. It contributes to the Commission’ efforts in favour of a Capital Markets Union (CMU). The BMR introduces an authorisation requirement for administrators of financial benchmarks as well as requirements for contributors of input data used to calculate the financial benchmark. The BMR also regulates the use of financial benchmarks 1 . In particular, the BMR rules require EU supervised entities (such as banks, investment firms, insurance undertakings, UCITS 2 ) to use only indices whose administrator has been authorised. Benchmarks administered in third countries can only be used in the EU following an equivalence, recognition or endorsement procedure. The Benchmark Regulation applies since January 2018 3 . However, EU market participants can continue to use benchmarks administered in a country outside the Union - regardless of whether an equivalence decision is in place, the index has been recognised or endorsed for use in the Union 4 – until the transitional regime expires at the end of December 2021. 1.1.1. The orderly cessation of financial benchmarks Due to concerns about whether the London Interbank Offered Rate (LIBOR) adequately represents an underlying market or economic reality reflective of interbank borrowing, the national competent authority for LIBOR (the UK Financial Conduct Authority or “FCA”) has announced the likely cessation of LIBOR after the end of 2021. The FCA, in all its public statements, has been clear that, where a benchmark loses representativeness and its representativeness will not be restored, use of the benchmark by supervised entities must cease. Relying on a very small number of panel banks such that LIBOR was no longer representative of the underlying market or economic reality that LIBOR sought to measure, means that its value could deviate significantly from that economic reality, as well as becoming more volatile. As documented in the Commission’s impact assessment, many financial instruments and contracts that reference LIBOR will not have reached maturity by the expected cessation date after the end of 2021. Many of these contracts involve debt issued by supervised entities, debt instruments held on the balance sheet by supervised entities, the loan portfolio of supervised entities and derivative contracts that these entities have concluded to hedge their positions. As mentioned above, supervised entities within the scope of the EU Benchmark Regulation may only use indices that are authorised as compliant with the BMR. The disappearance of LIBOR will have significant economic impacts that EU supervised entities could not have anticipated when concluding these often longer maturity contracts. Many of these contracts, especially those concluded before adoption of the BMR in 2016, often lack any contractual “fall-back” provisions that deal with the permanent discontinuation of the LIBOR rate. Amending the terms of thousands of contracts that currently contain references to LIBOR will not always be possible in the short period remaining until the expected end of the LIBOR at the end of 2021. Many currently existing debt, loan, deposit and many of the derivative contracts would, upon a permanent cessation of an interest rate benchmark, such as LIBOR, lack a contractual fall-back rate that allows parties to continue to comply with their contractual obligations. If no remedies were envisaged, the discontinuation of a widely used interest rate benchmark will have negative consequences for EU supervised entities and their contractual counterparts from whom these entities either borrow or to whom they lend funds. All counterparts in contracts referencing such a benchmark that are still pending at the date of cessation will face legal uncertainty as to the validity and enforcement of their contractual obligations. The range of contracts that will be affected by the cessation of a widely used interest rate benchmark includes: (1) debt issuances by supervised entities; (2) debt held on the balance sheet of supervised entities; (3) loans; (4) deposits and (5) derivative contracts. A large part of the financial contracts that reference widely used interest rate benchmarks involve supervised entities within the scope of the BMR. The legal uncertainty and potentially adverse economic impact that may result from difficulties in the ability to enforce contractual obligations will pose a risk for financial stability in the Union. To mitigate the risk of contract frustration and the ensuing risk to financial stability, central banks in various currency areas have set up working groups to recommend fall-back rates that would apply to the legacy stock of contracts that reference interest rate benchmarks in cessation and that could not be renegotiated by the date of the permanent cessation of this benchmark. For example, the Alternative Reference Rate Committee (ARRC) in the United State has recommended a waterfall that includes a replacement rate calculation based on a risk-free overnight rate (SOFR) plus a spread adjustment to make the replacement rate resemble, as close as possible, the economic properties of the discontinued benchmark. The aim of these replacement rates would therefore be to mimic, to the extent possible, what the contract parties intended to achieve by references to the benchmark in cessation. It is a deliberate policy choice underpinning all recommendations for a replacement rate for legacy contracts that no new contracts (defined as contracts concluded after cessation of the benchmark) may reference the replacement rate. This is because the replacement rate is most likely a synthetic version of the benchmark in cessation and is meant to ease the transition to a new rate. For example, a replacement rate for USD LIBOR will most likely be calculated based on a risk-free overnight rate in borrowing (SOFR) plus a spread adjustment to reflect the historical spread between the risk-free overnight rate and the replaced LIBOR rate. While a synthetic version of a benchmark should be stable enough to accompany the wind-down of legacy portfolios, it is not a permanent solution, reflective of a supervised entity’s forward looking financing cost. However, even once these replacement rates are available, it will be difficult to amend all existing legacy contracts given the scale of the LIBOR references and the short period of time before LIBOR is expected to be discontinued. A reform of the BMR is therefore the right tool to establish a statutory replacement rate that mitigates the adverse consequences for legal certainty and financial stability that might ensue if LIBOR, or any other benchmark whose cessation would result in significant disruption in the functioning of financial markets in the Union, was discontinued without such a replacement rate being both available and integrated into legacy contracts that involve a supervised entity within the scope of the BMR. 1.1.2. Spot f oreign exchange rates While spot foreign exchange rates play a crucial role for the international economy, for several currencies, the rates that are available are largely unregulated and are often reflective of central bank monetary policies. In some countries, central banks have implemented controls to restrict the publication of spot foreign exchange rates outside their local jurisdiction. In addition to preventing publication of off-shore foreign exchange rates, certain countries have in place capital controls that limit the convertibility of their currencies. Since their currencies are not freely convertible, the availability of on-shore currency hedging tools, such as currency forwards, swaps or options, is limited. Demand for hedging tools against currency volatility in these countries outstrips the shallow liquidity offered by the on-shore market. In consequence, European financial institutions have developed off-shore derivatives markets that, due to the convertibility restrictions in place, settle into the base currency of the hedging entity, albeit by reference to the foreign exchange rate published at the moment of the hedging contract’s expiry. Therefore, hedging against movements in currencies subject to such convertibility restrictions is done with off-shore derivative contracts. These include financial instruments such as non-deliverable currency forwards and non-deliverable swaps. Where these forwards and swaps are offered by an EU supervised entity (a dealer bank ) 1 and traded on an EU trading venue or via an EU systematic internaliser, the spot currency rate that is used to determine the pay-out due under the forward or swap agreement constitutes a “use” of the spot exchange rate which brings the offer of forwards and swaps by a supervised entity within the scope of the BMR. At the end of the current transitional period set out in Article 51 of the BMR the reference to foreign exchange spot rates in EU-traded currency forwards or swaps will no longer be allowed. This means that, at the beginning of 2022, EU supervised entities are at risk of losing access to many public policy rates administered outside the EU, including spot foreign exchange rates that they reference in derivative contracts that they offer corporate counterparts to help them manage their day-to-day hedging of currency risk. The urgency of the issue arises as almost no other jurisdiction apart from the EU regulates spot exchange rates. Due to the absence of regulation, currency spot rates could not, therefore, be the subject of an equivalence assessment under the BMR. Neither can they be recognised or endorsed for use in the Union under the BMR, as both of these mechanisms, in turn, require some form of regulation and oversight. In conclusion, foreign exchange spot rates are not suitable candidates for equivalence, endorsement or recognition by the end of the transition period. This proposal, therefore, makes targeted modification of the scope of the BMR in order to ensure that European companies retain access to hedging tools against volatility of currencies that are not freely convertible into their base currency, ensuring seamless continuation of their business activities abroad after the expiry of the transitional period at the end of 2021. 
Revised version (Article 29 Use of a benchmark):
1. A supervised entity may use a benchmark or a combination of benchmarks in the Union if the benchmark is provided by an administrator located in the Union and included in the register referred to in Article 36 or is a benchmark which is included in the register referred to in Article 36. 1a. A supervised entity may also use the replacement for a benchmark designated in accordance with Article 23b or Article 23c. 2. Where the object of a prospectus to be published under Directive 2003/71/EC or Directive 2009/65/EC is transferable securities or other investment products that reference a benchmark, the issuer, offeror, or person asking for admission to trade on a regulated market shall ensure that the prospectus also includes clear and prominent information stating whether the benchmark is provided by an administrator included in the register referred to in Article 36 of this Regulation.
Article 30 Equivalence
1. In order for a benchmark or a combination of benchmarks provided by an administrator located in a third country to be used in the Union in accordance with Article 29(1), the benchmark and the administrator shall be included in the register referred to in Article 36. The following conditions shall be complied with in order to be included in the register: (a) an equivalence decision is adopted by the Commission in accordance with paragraph 2 or 3 of this Article; (b) the administrator is authorised or registered, and is subject to supervision, in the third country in question; (c) ESMA is notified by the administrator of its consent that its actual or prospective benchmarks may be used by supervised entities in the Union, of the list of the benchmarks for which they have given consent to be used in the Union and of the competent authority responsible for its supervision in the third country; and (d) the cooperation arrangements referred to in paragraph 4 of this Article are operational. 2. The Commission may adopt an implementing 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 under this Regulation, in particular taking account of whether the legal framework and supervisory practice of a third country ensures compliance with the IOSCO principles for financial benchmarks or, where applicable, with the IOSCO principles for PRAs; and (b) the binding requirements are subject to effective supervision and enforcement on an on-going basis in that third country. Such implementing decision shall be adopted in accordance with the examination procedure referred to in Article 50(2). 3. Alternatively, the Commission may adopt an implementing decision stating that: (a) binding requirements in a third country with respect to specific administrators or specific benchmarks or families of benchmarks are equivalent to the requirements under this Regulation, in particular taking account of whether the legal framework and supervisory practice of a third country ensures compliance with the IOSCO principles for financial benchmarks or, where applicable, with the IOSCO principles for PRAs; and (b) such specific administrators or specific benchmarks or families of benchmarks are subject to effective supervision and enforcement on an on-going basis in that third country. Such implementing decision shall be adopted in accordance with the examination procedure referred to in Article 50(2). 4. ESMA shall establish cooperation arrangements with the competent authorities of third countries whose legal framework and supervisory practices have been recognised as equivalent in accordance with paragraph 2 or 3. 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 relevant 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 in the third country; (c) the procedures concerning the coordination of supervisory activities, including on-site inspections. 5. ESMA shall develop draft regulatory technical standards to determine the minimum content of the cooperation arrangements referred to in paragraph 4 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 1 April 2017. 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.
Amendment rationale: CONTEXT OF THE PROPOSAL Reasons for and objectives of the proposal Integrated financial markets bring significant benefits to the funding of the European economy and for promoting jobs and growth on a sound and sustainable basis. To promote financial integration and market integrity while safeguarding financial stability, the EU internal market for financial services requires common rules and strong supervisory coordination. When the EU overhauled its financial system in response to the financial crisis, and in line with global efforts, it therefore introduced a Single Rulebook for financial regulation in Europe and created the European Supervisory Authorities ("ESAs"). The ESAs constitute an institutional cornerstone of the comprehensive reform package and have played a key role in ensuring that the financial markets across the EU are well regulated, strong and stable. They contribute to the development and consistent application of the Single Rulebook, solve cross-border problems, and thereby promote both regulatory and supervisory convergence. Despite the post-crisis measures, there remains significant potential to enhance regulatory and supervisory convergence in the internal market. Integrated financial markets require more integrated supervisory arrangements to function effectively, while more centralised supervisory arrangements can, in turn, foster market integration. For this reason, the EU has engaged in further integration across the broader financial sector on a sound and stable basis. In particular, the Capital Markets Union ("CMU") has been launched so a s to lay the foundations for a fully functional internal market for capital markets. In this context, the Five Presidents' Report on Completing Europe's Economic and Monetary Union of June 2015 1 highlighted the need to strengthen the EU supervisory framew ork, leading ultimately to a single capital-markets supervisor. More recently, the Commission Reflection Paper on the deepening of the Economic and Monetary Union 2 suggests that a review of the EU supervisory framework – in particular of the European Secu rities and Markets Authority ("ESMA") - should deliver the first steps towards such a single supervisor by 2019. The Reflection Paper also called for completing the Financial Union - comprising both a Banking Union and a Capital Markets Union– by 2019 so a s to guarantee the integrity of the euro and improve the functioning of the euro area and the EU as a whole. Global financial markets are strongly interconnected, and the EU's regulatory framework is largely based on international standards agreed in the w ake of the financial crisis notably among G20 countries. As the EU is striving to accelerate the completion of the CMU, it is therefore essential that EU supervisory arrangements continue to develop in a manner which allows to reap the full potential of i nternationally integrated financial markets while ensuring that cross-border risks between the EU and the rest of the world can be monitored and managed effectively. The ESAs have a key role to play in this regard. Finally, the decision of the United Kingdom to leave the EU reinforces these challenges for supervisory arrangements within the remaining EU27. The future departure of the EU’s currently largest financial centre means that EU27 capital markets need to develop further and supervisory arrangements must be strengthened to ensure that financial markets continue to support the economy on an adequate and sound basis. The objective of the present proposal is to adjust and upgrade the ESAs framework to ensure they can assume an enhanced responsibility for financial market supervision. The ESAs must be adequately equipped in terms of powers, governance and funding. First, where existing powers of the ESAs have proven partially insufficient and unclearly defined, for example as regards the consistent application of EU law, the drafting of technical advice or the provision of ongoing support to equivalence decisions, they must be strengthened and improved. The current scope of the ESAs' mandate must also be reconsidered in light of the policy objectives of the CMU. More common direct supervision in targeted areas is necessary to ensure more consistent supervisory practices and implementation of EU financial services rules. The 2017 review of the ESA Regulations concluded that the supervision of certain activities and entities with particular importance for the Union as a whole or with a significant degree of cross-border business should be carried out by the ESAs instead of by national competent authorities. Similarly, the ESAs should be more involved in the authorisation and supervision of entities from non-EU countries that are active in the Union. Second, this proposal aims at establishing a more effective governance of the ESAs. The incentive structure in the decision-making process of the ESAs as it stands today leads to the absence of decisions in particular in the area of regulatory convergence and supervisory convergence, or promotes decisions that are predominantly oriented towards national instead of broader EU interests. This reflects, to so me extent, an inherent tension between the European mandate of the ESAs and the national mandate of the competent authorities that are members of the ESA Boards. 3 This position is not well aligned with the objective of supervisory convergence. A greater role for the ESAs in deepening financial integration or strengthening the stability of the internal market will also require more effective convergence powers. 4 Third, the ESAs need an appropriate funding base which allows them to allocate resources in relation to their needs to fulfil their objective. Current budget arrangements constrain and will continue to constrain the ESAs' activities, as Member States for different reasons might be unwilling to increase national contributions further. The present proposal sets out specific amendments to the ESA Regulations 5 and various sector acts 6 to reinforce the powers, governance and funding framework of the ESAs, as these are the areas which need to be reinforced to allow the ESAs to meet the challenges outlin ed above. The impact assessment report accompanying this proposal considers the costs and benefits of these amendments. It sets out a number of options of measures intended to enhance the powers of the ESAs at EU level, improve their governance (including decision- making), and to ensure that their funding framework is sustainable and commensurate with current and future tasks. The impact assessment provides comprehensive evidence that the proposed amendments contribute effectively to reinforcing the ESA framework and thereby to the overall stability of the EU financial system, while keeping costs to the EU General Budget and stakeholders at a minimum. The proposed amendments also contribute to the further development and deepening of the CMU, in line with the political priorities of the Commission. 
Revised version (Article 30 Equivalence):
1. In order for a benchmark or a combination of benchmarks provided by an administrator located in a third country to be used in the Union in accordance with Article 29(1), the benchmark and the administrator shall be included in the register referred to in Article 36. The following conditions shall be complied with in order to be included in the register: (a) an equivalence decision is adopted by the Commission in accordance with paragraph 2 or 3 of this Article; (b) the administrator is authorised or registered, and is subject to supervision, in the third country in question; (c) ESMA is notified by the administrator of its consent that its actual or prospective benchmarks may be used by supervised entities in the Union, of the list of the benchmarks for which they have given consent to be used in the Union and of the competent authority responsible for its supervision in the third country; and (d) the cooperation arrangements referred to in paragraph 4 of this Article are operational. 2. The Commission may adopt an implementing 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 under this Regulation, in particular taking account of whether the legal framework and supervisory practice of a third country ensures compliance with the IOSCO principles for financial benchmarks or, where applicable, with the IOSCO principles for PRAs; and (b) the binding requirements are subject to effective supervision and enforcement on an on-going basis in that third country. Such implementing decision shall be adopted in accordance with the examination procedure referred to in Article 50(2). 3. Alternatively, the Commission may adopt an implementing decision stating that: (a) binding requirements in a third country with respect to specific administrators or specific benchmarks or families of benchmarks are equivalent to the requirements under this Regulation, in particular taking account of whether the legal framework and supervisory practice of a third country ensures compliance with the IOSCO principles for financial benchmarks or, where applicable, with the IOSCO principles for PRAs; and (b) such specific administrators or specific benchmarks or families of benchmarks are subject to effective supervision and enforcement on an on-going basis in that third country. 4. ESMA shall establish cooperation arrangements with the competent authorities of third countries whose legal framework and supervisory practices have been recognised as equivalent in accordance with paragraph 2 or 3. 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 relevant 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 in the third country; (c) the procedures concerning the coordination of supervisory activities, including on-site inspections. 5. ESMA shall develop draft regulatory technical standards to determine the minimum content of the cooperation arrangements referred to in paragraph 4 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 1 April 2017. 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.