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

EN

Official Journal of the European Union

L 171/1

The pricing of many financial instruments and financial contracts depends on the accuracy and integrity of benchmarks. Serious cases of manipulation of interest rate benchmarks such as LIBOR and EURIBOR, as well as allegations that energy, oil and foreign exchange benchmarks have been manipulated, demonstrate that benchmarks can be subject to conflicts of interest. The use of discretion, and weak governance regimes, increase the vulnerability of benchmarks to manipulation. Failures in, or doubts about, the accuracy and integrity of indices used as benchmarks can undermine market confidence, cause losses to consumers and investors and distort the real economy. It is therefore necessary to ensure the accuracy, robustness and integrity of benchmarks and of the benchmark determination process.

Directive 2014/65/EU of the European Parliament and of the Council (4) contains certain requirements with respect to the reliability of benchmarks used to price a listed financial instrument. Directive 2003/71/EC of the European Parliament and of the Council (5) contains certain requirements on benchmarks used by issuers. Directive 2009/65/EC of the European Parliament and of the Council (6) contains certain requirements on the use of benchmarks by undertakings for collective investment in transferable securities (UCITS). Regulation (EU) No 1227/2011 of the European Parliament and of the Council (7) contains certain provisions which prohibit the manipulation of benchmarks that are used for wholesale energy products. However, those legislative acts only cover certain aspects of certain benchmarks and they neither address all the vulnerabilities in the provision of all benchmarks, nor do they cover all uses of financial benchmarks in the financial industry.

Benchmarks are vital in pricing cross-border transactions, thereby facilitating the effective functioning of the internal market in a wide variety of financial instruments and services. Many benchmarks used as reference rates in financial contracts, in particular mortgages, are provided in one Member State but used by credit institutions and consumers in other Member States. In addition, such credit institutions often hedge their risks or obtain funding for granting those financial contracts in the cross-border interbank market. Only a few Member States have adopted national rules on benchmarks, but their respective legal frameworks on benchmarks already show divergences regarding aspects such as the scope of application. In addition, the International Organisation of Securities Commissions (IOSCO) agreed principles on financial benchmarks on 17 July 2013 (‘IOSCO principles for financial benchmarks’), Principles for Oil Price Reporting Agencies on 5 October 2012 (‘IOSCO principles for PRAs’) (together, ‘the IOSCO principles’), and since those principles provide a certain flexibility as to their exact scope and means of implementation, Member States are likely to adopt...