06 June 2013
The European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) have published their final report setting out their Principles for Benchmark-Setting Processes in the EU.
The Principles are designed to address the problems identified with benchmark-setting processes and will provide benchmark users, administrators, calculation agents, publishers and data submitters with a common framework for carrying out these activities. The application of the Principles will also help in the transition to any potential future EU legal framework for benchmarks.
ESMA and the EBA consider it important that these Principles are implemented by all market participants, with the aim of reinforcing the robustness of the procedures, ensuring transparency to the public and creating a level-playing field, and also by supervisory authorities in their supervisory practices, where relevant and possible.
ESMA and the EBA will review the Principles' application after 18 months, although that time-frame may be altered as necessary, while further work on possible transaction-based alternatives will be carried out by ESMA and the EBA in the near future.
Steven Maijoor, ESMA Chair, said:
"The final Principles now give clarity to benchmark providers and users in the European Union about what is expected of them when engaged in this critical market activity. These Principles reflect the wider work being carried out on benchmarks and their immediate adoption will help restore confidence in financial benchmarks and prepare the way for future legislative change."
Andrea Enria, EBA Chair, said:
"The EBA and ESMA believe that these Principles represent a sound interim solution for benchmark providers and users, ensuring that these important market indices are produced in a transparent and reliable manner. We are also continuing our review of the implementation of the Euribor recommendations by the European Banking Federation and aim to publish this in due course."
ESMA and the EBA have co-ordinated their work with current initiatives underway at EU, Member State and international level and have worked toward aligning the Principles with those being developed by the International Organization of Securities Commissions (IOSCO).
Further to comments received during the consultation process, modifications were made to the proposed Principles to address:
The Principles provide a general framework covering all stages of the benchmarks setting process including data submission, administration, calculation, publication, the use of benchmarks and the continuity of benchmarks.
A framework for any benchmark setting process should at least include the Principles set out below in order to instil confidence in financial markets and market participants, and guarantee the necessary accuracy and integrity of the benchmark formation process:
Any change to a benchmark framework (calculation methodologies and procedures) should be managed in such a manner as to ensure that any disruption to existing benchmark-referenced contracts are proportionate and minimised.
1. The EBA is an independent EU Authority established on 1 January 2011. As part of the European System of Financial Supervision, it works closely with the other European Supervisory Authorities responsible for market (ESMA), insurance and occupational pensions (EIOPA), and the European Systemic Risk Board (ESRB).The EBA has a broad remit in the areas of banking, payments and e-money regulation, as well as on issues related to corporate governance, auditing and financial reporting. Its tasks include preventing regulatory arbitrage, guaranteeing a level playing field (especially by building a single rule book for the European banking system) strengthening international supervisory coordination, promoting supervisory convergence and providing advice to EU institutions.
2. ESMA is an independent EU Authority that was established on 1 January 2011 and works closely with the other European Supervisory Authorities responsible for banking (EBA), and insurance and occupational pensions (EIOPA), and the European Systemic Risk Board (ESRB).
ESMA's mission is to enhance the protection of investors and promote stable and well-functioning financial markets in the European Union (EU). As an independent institution, ESMA achieves this aim by building a single rule book for EU financial markets and ensuring its consistent application across the EU. ESMA contributes to the regulation of financial services firms with a pan-European reach, either through direct supervision or through the active co-ordination of national supervisory activity.