Associations Weigh in on EU Financial Benchmarks Regulation

FIA, GFMA and ISDA provided feedback to the ESMA Discussion Paper on EU Financial Benchmarks Regulation, which addresses the implementation of ESMA’s proposed regulation of indices used as benchmarks in financial instruments and financial contracts in the wake of the alleged manipulation of various benchmarks. The proposed Benchmark Regulation is intended to ensure the accuracy, robustness and integrity of benchmarks and the benchmark setting process by clarifying the codes of conduct and standards expected of administrators and contributors. In publishing the Discussion Paper, the ESMA sought comments to assist with formulating such regulation.

While the associations expressed general support of a regulatory framework to improve financial benchmarks, they warned that requirements should not be so burdensome and implementation so complex as to discourage market innovation and the participation of contributors in the benchmark-setting process. They suggested that ESMA avoid casting a wide net to capture customized indices and bespoke products intended for professional investors that do not pose a near-term risk to the real economy.

The associations specifically recommended that ESMA:

• set regulatory requirements in proportion to the size and significance of a benchmark;
• align technical standards with the IOSCO Principles and GFMA Best Practices;
• retain consistency with other EU regulation, particularly with respect to the concept of issuance of financial instruments;
• allow administrators and contributors discretion to establish the appropriate oversight roles in keeping with IOSCO Principles;
• maximize leverage of existing or already-planned sources of economic, market and instrument data, as well as reporting arrangements, when establishing processes for the various periodic quantitative analyses required under the benchmark regulation; and
• establish clear and efficient authorization and registration processes, as well as provisions for use of third-country benchmarks.