Council and Parliament reach deal on financial benchmarks

The Council and the European Parliament reached a provisional agreement on a proposal to streamline benchmark authorisation and registration requirements, and to alleviate the burden on EU companies, particularly SMEs (smaller benchmark administrators and benchmark users).

The provisional agreement needs to be confirmed by both institutions before being prepared for formal adoption.

Benchmarks are typically indexes or another basket of financial assets, they are widely used by companies and investors in the EU as a reference in their financial instruments or contracts.

As part of the provisional deal reached today, the Council and Parliament agreed with the Commission’s proposal to reduce the regulatory burden on administrators of benchmarks defined as non-significant in the EU, by removing them from the scope of current rules.

The Council and Parliament agreed that only those benchmarks defined as critical or significant, EU Paris-aligned benchmarks, EU Climate Transition benchmarks, and certain commodity benchmarks should remain under the scope of the regulation.

In addition, administrators outside the scope will have the possibility to request the voluntary application of the rules (opt-in), under certain conditions.

The Council and Parliament agreed to add further qualitative criteria to the calculation methodology for significant benchmarks, in addition to existing qualitative and quantitative criteria. Under the current rules, benchmarks are deemed significant if they 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. New criteria would be considered from now on.

The provisional agreement grants extended competence to ESMA (European Securities and Markets Authority). More specifically, ESMA will be in charge of supervising the endorsement of administrators, which would result in a single entry point for all third country benchmark administrators in the EU.

The Council and the Parliament agreed that supervised entities would only be allowed to use EU and third-country benchmarks that claim to take environmental sustainability and governance factors (ESG) into account in their methodology, if the administrator of the benchmarks discloses certain information.

The Council and Parliament decided to keep a specific exemption regime for spot foreign exchange benchmarks in the rules.

Next steps

The provisional agreement will now have to be confirmed by the Council and Parliament, before being formally adopted by both institutions. The text of the provisional agreement will be made available once confirmed. Once formally adopted, the final text will be published in the Official Journal of the EU, enter into force, and apply from 1 January 2026.

Background

The current regulation on indices used as financial benchmarks sets standards with the aim of preventing manipulation of benchmarks that could affect the price of financial instruments. The regulation sets requirements for administrators responsible for the provision of financial benchmarks.

The regulation also sets three separate regimes, with an increasing level of supervision and regulation depending on the benchmarks’ importance: non-significant benchmarks, significant benchmarks (which 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) and critical benchmarks (at least €500 billion, or fulfil certain other criteria).

Also, under the current rules, EU market participants can only use benchmarks produced or administered in a non-EU country if the country concerned has a framework equivalent to that of the EU, if its benchmark is endorsed by an EU benchmark administrator, or if the benchmark is recognised in the EU.

The Commission submitted it proposal on benchmarks on 30 October 2023. It forms part of a package of measures to rationalise financial reporting requirements.