Benchmark Regulations

Regulation (EU) 2016/1011 of the European Parliament and the Council of the 8 June 2016 on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds. (the Benchmarks Regulation) 

The Benchmarks Regulation will have direct application into Gibraltar law and came into force on the 1st January 2018. 

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.

The Benchmarks Regulation is a legislative response to the LIBOR and EURIBOR scandals. The predominant objective of the Benchmarks Regulation is to provide a regulatory framework to supervise the use of indices used as benchmarks in financial instruments and financial contracts. The regulation is intended to: 

(a) improve governance and controls over the benchmark process, particularly in relation to conflicts of interest;

(b) improve the quality of input data and methodologies, and ensure that data contributions are free from conflicts of interests;

(c) protect consumers and investors through greater transparency, rights of redress and, in certain circumstances, a suitability assessment. 

The requirements in the Benchmarks Regulation apply to benchmark administrators, benchmark contributors and benchmark users. The requirements are largely dependent on the type and category of the benchmarks they administer/contribute to. There are four broad categories of benchmark: (1) interest rate benchmarks; (2) commodity benchmarks; (3) regulated-data benchmarks; (4) other non-commodity benchmarks. In addition, there are three levels of benchmarks, allocated in accordance with the impact and importance of these benchmarks to financial services users - critical, significant and non-significant benchmarks. 

A brief set of changes to our legislation are being made in order to implement certain provisions from the Regulation.

Next Steps

The GFSC is writing to firms that may be caught by the Benchmark Regulations ((EU) 2016/1011).  These are namely firms offering mortgage or consumer credit and firms pricing Alternative Investment Funds (AIFs).  

All entities caught by these Regulations will need to make the necessary changes, by 1st January 2020, to continue conducting the activities.  

The GFSC will provide further information in due course on the authorisation or registration process, however, you should start to familiarise yourself with the Regulations which you can access via this link.