Setting the New Benchmark: EU Regulation on Financial Benchmarks

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Background -

The integrity of benchmarks used in financial transactions has been the subject of increasing focus from regulators since the investigations into manipulation of the setting of LIBOR, EURIBOR and other benchmarks. Action was taken in the UK following the Wheatley Review of LIBOR to reform the setting and usage of LIBOR, and the UK Financial Conduct Authority (FCA) has subsequently taken action to regulate additional specific financial benchmarks.

At an international level, in July 2013, the International Organisation of Securities Commissions (IOSCO) published its Final Report on Principles for Financial Benchmarks. Shortly thereafter, the EU Commission published a draft regulation seeking to establish a pan-European approach to the regulation of benchmark administrators, contributors and users. The subsequent legislative process has been lengthy and has involved significant amendments to the initial draft. However, on 17 May 2016, the European Council of Ministers formally adopted the final version of the Regulation on indices used as benchmarks in financial instruments and financial contracts or to measure the performance of investment funds (the “Benchmark Regulation”) which had previously been adopted by the EU Parliament. It published what is expected to be the final version of the Benchmark Regulation on 10 June 2016. The Benchmark Regulation will come into force the day after it is published in the Official Journal of the EU. This is expected to happen in June or early July 2016. Most of its provisions will not, however, be implemented until 18 months after such date (so December 2017 or January 2018) with the exception of some provisions that will apply immediately upon it coming into force and provisions amending the Market Abuse Regulation (which will apply from 3 July 2016 to dovetail with the Market Abuse Regulation becoming effective).

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