Regulation 2016/1011 - Indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds - Main contents

SUMMARY OF:

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

WHAT IS THE AIM OF THE REGULATION?

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

KEY POINTS

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  Administrators* responsible for overseeing financial benchmarks must:

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    apply robust governance arrangements and clear organisational structures;
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    identify, prevent, or manage any potential conflicts of interest;
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    ensure their staff have the necessary skills, knowledge and experience, and are effectively managed and supervised;
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    maintain permanent and effective oversight of all aspects of the benchmarks under their responsibility;
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    operate controls to ensure benchmarks comply with the legislation;
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    have a system in place to record input data, phone or electronic communications and complaints received and investigated;
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    subject any outsourcing to strict conditions;
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    publish clear guidelines for different types of input data and the methodology used for calculating benchmarks;
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    develop a code of conduct stipulating the responsibilities of contributors inputting the data.

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  The regulation establishes 3 separate regimes progressively increasing the level of regulation and supervision depending on a benchmark’s importance:

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    non-significant benchmarks do not fall into either of the 2 categories below and are subject to less onerous rules;
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    significant benchmarks are used as a reference for financial instruments, financial contracts or investment funds with a total average value of at least €50 billion or fulfil certain other criteria;
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    critical benchmarks are used as a reference for financial instruments, financial contracts or investment funds with a total value of at least €500 billion or fulfil certain other criteria.

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  Specific arrangements exist for commodity benchmarks*, interest rate benchmarks and regulated data benchmarks*.
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  The regulation introduces two types of EU climate benchmarks, that are underpinned by a methodology linked to the commitments laid down in the Paris agreement.
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  The regulation also lays down environmental, social and governance (ESG) disclosure requirements for all benchmarks with the exception of interest rate and foreign exchange benchmarks.
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  The European Securities and Markets Authority (ESMA) establishes and maintains a public register of all authorised or registered administrators.
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  Various schemes exist to provide access to the EU market for financial benchmarks and administrators from outside the EU.
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  EU countries’ competent authorities have the power to apply appropriate administrative sanctions and other measures for an infringement.
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  The European Commission, by 1 January 2020, is to report to the European Parliament and the Council of the European Union on the way the system is functioning.

FROM WHEN DOES THE REGULATION APPLY?

It has applied since 1 January 2018 except for certain articles which have already applied since 30 June 2016. These articles involve largely preparatory work, such as the development by ESMA of regulatory technical standards, but also the identification and supervision of critical benchmarks.

BACKGROUND

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  Benchmarks are used to price financial instruments and financial contracts or to measure the performance of investment funds. Well-known examples of benchmarks are the London Interbank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR) used for interbank interest rates. Benchmarks are also used for oil price assessments, stock market indexes and the level of personal mortgage payments.
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  For more information, see:

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    EU climate benchmarks and benchmarks’ ESG disclosures (European Commission).

KEY TERMS

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

Administrator: Administrator: an individual or company/organisation with control over a benchmark.

Commodity benchmark: often based on data from non-supervised entities (e.g. commodity producer organisations). Their administrators are therefore required to take steps to ensure that benchmarks are provided on a fair, reasonable, transparent and non-discriminatory basis to all users.

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

MAIN DOCUMENT

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

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

RELATED DOCUMENTS

Commission Delegated Regulation (EU) 2020/1816 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards the explanation in the benchmark statement of how environmental, social and governance factors are reflected in each benchmark provided and published (OJ L 406, 3.12.2020, pp. 1-11)

Commission Delegated Regulation (EU) 2020/1817 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards the minimum content of the explanation on how environmental, social and governance factors are reflected in the benchmark methodology (OJ L 406, 3.12.2020, pp. 12-16)

Commission Delegated Regulation (EU) 2020/1818 of 17 July 2020 supplementing Regulation (EU) 2016/1011 of the European Parliament and of the Council as regards minimum standards for EU Climate Transition Benchmarks and EU Paris-aligned Benchmarks (OJ L 406, 3.12.2020, pp. 17-25)

Commission Implementing Regulation (EU) 2016/1368 of 11 August 2016 establishing a list of critical benchmarks used in financial markets pursuant to Regulation (EU) 2016/1011 of the European Parliament and of the Council (OJ L 217, 12.8.2016, pp. 1-3)

See consolidated version.

Regulation (EU) No 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse (market abuse regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (OJ L 173, 12.6.2014, pp. 1-61)

See consolidated version.

Directive 2014/17/EU of the European Parliament and of the Council of 4 February 2014 on credit agreements for consumers relating to residential immovable property and amending Directives 2008/48/EC and 2013/36/EU and Regulation (EU) No 1093/2010 (OJ L 60, 28.2.2014, pp. 34-85)

See consolidated version.

Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers and repealing Council Directive 87/102/EEC (OJ L 133, 22.5.2008, pp. 66-92)

See consolidated version.

last update 12.01.2017

This summary has been adopted from EUR-Lex.