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TITLE IIIU.K.REQUIREMENTS FOR DIFFERENT TYPES OF BENCHMARKS

CHAPTER 4U.K.Critical benchmarks

[F1Article A20U.K. Critical benchmarks: review of critical benchmarks

1.The FCA must conduct a proportionate review of critical benchmarks in accordance with paragraphs 2 to 4, taking into account information provided to it under paragraph A1 of Article 20.

2.The review must consider:

(a)whether an administrator located in the United Kingdom provides a benchmark that either:

(i)satisfies one or more of conditions (a), (b) or (c) of paragraph 1 of Article 20; or

(ii)satisfies only points (c)(ii) and (iii) of paragraph 1 of Article 20; and

(b)where a benchmark satisfies point (a)(i) or (ii) of this paragraph, whether the FCA recommends that the benchmark is recognised as critical.

3.The FCA must provide a written report to the Treasury:

(a)setting out the result of the review; and

(b)making a recommendation as to whether any benchmark that satisfies point (a)(i) or (ii) of paragraph 2 should be recognised as critical.

4.The FCA must conduct the review and provide the report to the Treasury:

(a)within the period of two years beginning with IP completion day; and

(b)thereafter, at intervals of at least every two years, with each interval beginning with the date on which the last report was provided.

5.The Treasury must by regulations specify that a benchmark is critical if:

(a)the FCA has recommended that the benchmark is recognised as critical in accordance with the review procedure specified in paragraphs 2 and 3; and

(b)the Treasury determines that the FCA's review complies with the requirements of paragraphs 2 and 3.

6.The Treasury may by regulations specify that a benchmark is critical if:

(a)the benchmark is provided by an administrator located in the United Kingdom; and

(b)the Treasury considers that the benchmark either:

(i)satisfies one or more of conditions (a), (b), or (c) in paragraph 1 of Article 20; or

(ii)satisfies only the criteria in point (c)(ii) and (iii) in paragraph 1 of Article 20.

7.The Treasury may not specify a regulated-data benchmark as a critical benchmark under paragraph 5 or 6 of this Article or under paragraph 5 of Article 20.]

Textual Amendments

Article 20U.K.[F2Critical benchmarks: conditions and other matters]

[F3A1.An administrator shall immediately notify the FCA when the administrator’s benchmark:

(a)exceeds the threshold in paragraph 1(a); or

(b)fulfils the criterion in paragraph 1(c)(ii) and there is reason to believe that it also fulfils the criterion in paragraph 1(c)(iii).]

1.[F4The conditions are:]

(a)the benchmark is used directly or indirectly within a combination of benchmarks as a reference for financial instruments or financial contracts or for measuring the performance of investment funds, having a total value of at least EUR 500 billion on the basis of all the range of maturities or tenors of the benchmark, where applicable;

(b)the benchmark is based on submissions by contributors the majority of which are located in [F5the United Kingdom] and is recognised as being critical F6... in accordance with the procedure laid down in paragraphs 2, 3, 4 and 5 of this Article;

(c)the benchmark fulfils all of the following criteria:

(i)

the benchmark is used directly or indirectly within a combination of benchmarks as a reference for financial instruments or financial contracts or for measuring the performance of investment funds having a total value of at least EUR 400 billion on the basis of all the range of maturities or tenors of the benchmark, where applicable, but not exceeding the value provided for in point (a);

(ii)

the benchmark has no, or very few, appropriate market-led substitutes;

(iii)

in the event that the benchmark ceases to be provided, or is provided on the basis of input data no longer fully representative of the underlying market or economic reality or on the basis of unreliable input data, there would be significant and adverse impacts on market integrity, financial stability, consumers, the real economy, or the financing of households and businesses in [F7the United Kingdom].

F8...

[F92.Where the FCA considers that a benchmark should be recognised as critical based on an assessment under paragraph 3, and that benchmark is based on submissions by contributors the majority of which are located in the United Kingdom, the FCA shall notify the Treasury and transmit to the Treasury a documented assessment.]

3.For the purposes of paragraph 2, the [F10FCA] shall assess whether the cessation of the benchmark or its provision on the basis of input data or of a panel of contributors no longer representative of the underlying market or economic reality would have an adverse impact on market integrity, financial stability, consumers, the real economy, or the financing of households and businesses in [F11the United Kingdom]. The [F12FCA] shall take into consideration in its assessment:

(a)the value of financial instruments and financial contracts that reference the benchmark and the value of investment funds referencing the benchmark for measuring their performance within the [F13United Kingdom] and their relevance in terms of the total value of financial instruments and of financial contracts outstanding, and of the total value of investment funds, in the [F13United Kingdom];

(b)the value of financial instruments and financial contracts that reference the benchmark and the value of investment funds referencing the benchmark for measuring their performance within the [F13United Kingdom] and their relevance in terms of the gross national product of the [F13United Kingdom];

(c)any other figure to assess on objective grounds the potential impact of the discontinuity or unreliability of the benchmark on market integrity, financial stability, consumers, the real economy, or the financing of households and businesses in the [F13United Kingdom].

F14...

4.Within six weeks of receipt of the notification referred to in paragraph 2, [F15the Treasury must determine whether the FCA's assessment complies with the requirements of paragraph 3.]

[F165.The Treasury must make regulations specifying that a benchmark is critical if:

(a)the FCA has recommended that the benchmark is recognised as critical in accordance with the procedure specified in paragraphs 2 and 3; and

(b)the Treasury determines that the FCA's assessment complies with the requirements of paragraph 3.]

[F175A.The FCA must:

(a)review the values in points (a) and (c)(i) of paragraph 1 (the “thresholds”) in the light of market, price and regulatory developments and the appropriateness of the classification of benchmarks with a total value of financial instruments, financial contracts, or investment funds referencing them that is close to the thresholds; and

(b)provide a written report to the Treasury setting out the results of the review and making a recommendation as to whether the thresholds should be amended.

5B.The FCA must conduct the review and provide the report to the Treasury:

(a)within the period of two years beginning with IP completion day; and

(b)thereafter, at intervals of at least every two years, with each interval beginning with the date on which the last report was provided.]

6.[F18The Treasury may by regulations]

(a)specify how the nominal amount of financial instruments other than derivatives, the notional amount of derivatives and the net asset value of investment funds are to be assessed, including in the event of an indirect reference to a benchmark within a combination of benchmarks, in order to be compared with the thresholds referred to in paragraph 1 of this Article and in point (a) of Article 24(1);

[F19(b)amend the thresholds in points (a) and (c)(i) of paragraph 1 having regard to:

(i)the matters referred to in point (a) of paragraph 5A; and

(ii)any report prepared by the FCA under paragraph 5A;]

(c)specify how the criteria referred to in point (c)(iii) of paragraph 1 of this Article are to be applied, taking into consideration any data which helps assess on objective grounds the potential impact of the discontinuity or unreliability of the benchmark on market integrity, financial stability, consumers, the real economy, or the financing of households and businesses in [F20the United Kingdom].

Where applicable, the [F21Treasury] shall take into account relevant market or technological developments.

Textual Amendments

Article 21U.K.Mandatory administration of a critical benchmark

1.If an administrator of a critical benchmark intends to cease providing such benchmark, the administrator shall:

(a)immediately notify [F22the FCA]; and

(b)within four weeks of such notification submit an assessment of how the benchmark:

(i)

is to be transitioned to a new administrator; or

(ii)

is to be ceased to be provided, taking into account the procedure established in Article 28(1).

During the period referred to in point (b) of the first subparagraph, the administrator shall not cease provision of the benchmark.

2.Upon receipt of the assessment of the administrator referred to in paragraph 1, [F23the FCA] shall:

F24(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(b)within four weeks, make its own assessment of how the benchmark is to be transitioned to a new administrator or be ceased to be provided, taking into account the procedure established in accordance with Article 28(1).

During the period of time referred to in point (b) of the first subparagraph of this paragraph, the administrator shall not cease the provision of the benchmark without the written consent of [F25the FCA].

3.Following completion of the assessment referred to in point (b) of paragraph 2, [F26the FCA] shall have the power to compel the administrator to continue publishing the benchmark until such time as:

(a)the provision of the benchmark has been transitioned to a new administrator;

(b)the benchmark can be ceased to be provided in an orderly fashion; or

(c)the benchmark is no longer critical.

For the purposes of the first subparagraph, the period for which [F26the FCA] may compel the administrator to continue to publish the benchmark shall not exceed 12 months.

[F27By the end of that period, [F26the FCA] shall review its decision to compel the administrator to continue to publish the benchmark. [F26The FCA] may, where necessary, extend that period by an appropriate period not exceeding 12 months. The maximum period of mandatory administration shall not exceed five years.]

4.Without prejudice to paragraph 1, in the event that the administrator of a critical benchmark is to be wound down due to insolvency proceedings, [F28the FCA] shall make an assessment of whether and how the critical benchmark can be transitioned to a new administrator or can cease to be provided in an orderly fashion, taking into account the procedure established in accordance with Article 28(1).

Textual Amendments

Article 22U.K.Mitigation of market power of critical benchmark administrators

Without prejudice to the application of [F29United Kingdom] competition law, when providing a critical benchmark, the administrator shall take adequate steps to ensure that licences of, and information relating to, the benchmark are provided to all users on a fair, reasonable, transparent and non-discriminatory basis.

Textual Amendments

Article 23U.K.Mandatory contribution to a critical benchmark

1.This Article shall apply to critical benchmarks based on submissions by contributors the majority of which are supervised entities.

2.Administrators of one or more critical benchmarks shall, every two years, submit to [F30the FCA] an assessment of the capability of each critical benchmark they provide to measure the underlying market or economic reality.

3.If a supervised contributor to a critical benchmark intends to cease contributing input data, it shall promptly notify in writing the benchmark administrator, which shall inform without delay [F31the FCA]. F32... The benchmark administrator shall submit to [F33the FCA] an assessment of the implications on the capability of the benchmark to measure the underlying market or economic reality as soon as possible but no later than 14 days after the notification made by the supervised contributor.

4.Upon receipt of an assessment of the benchmark administrator referred to in paragraphs 2 and 3 of this Article and on the basis of such assessment, the [F34FCA must] make its own assessment on the capability of the benchmark to measure the underlying market and economic reality, taking into account the administrator's procedure for cessation of the benchmark established in accordance with Article 28(1).

5.From the date on which the [F35FCA] is notified of the intention of a contributor to cease contributing input data and until such time as the assessment referred to in paragraph 4 is complete, it shall have the power to require the contributors which made the notification in accordance with paragraph 3 to continue contributing input data, in any event for a period of no more than four weeks, without imposing an obligation on supervised entities to either trade or commit to trade.

6.In the event that the [F36FCA], after the period specified in paragraph 5 and on the basis of its own assessment referred to in paragraph 4, considers that the representativeness of a critical benchmark is put at risk, it shall have the power to:

(a)require supervised entities selected in accordance with paragraph 7 of this Article, including entities that are not yet contributors to the relevant critical benchmark, to contribute input data to the administrator in accordance with the administrator's methodology, the code of conduct referred to in Article 15 and other rules. Such requirement shall be in place for an appropriate period of time not exceeding 12 months from the date on which the initial decision requiring mandatory contribution was taken pursuant to paragraph 5 or, for those entities that are not yet contributors, from the date on which the decision requiring mandatory contribution is taken under this point;

(b)extend the period of mandatory contribution by an appropriate period of time not exceeding 12 months, following a review under paragraph 9 of any measures adopted pursuant to point (a) of this paragraph;

(c)determine the form in which, and the time by which, any input data is to be contributed without imposing an obligation on supervised entities to either trade or commit to trade;

(d)require the administrator to change the methodology, the code of conduct referred to in Article 15 or other rules of the critical benchmark.

[F27The maximum period of mandatory contribution under points (a) and (b) of the first subparagraph shall not exceed five years.]

7.For the purposes of paragraph 6, supervised entities that are to be required to contribute input data shall be selected by the [F37FCA] on the basis of the size of the supervised entity's actual and potential participation in the market that the benchmark intends to measure.

F388.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9.By the end of the period referred to in point (a) of the first subparagraph of paragraph 6, the [F39FCA] shall review the measures adopted under paragraph 6. It shall revoke any of them if it considers that:

(a)the contributors are likely to continue contributing input data for at least one year if the measure were revoked, which shall be evidenced by at least:

(i)

a written commitment by the contributors to the administrator and the [F40FCA] to continue contributing input data to the critical benchmark for at least one year if the measure were revoked;

(ii)

a written report by the administrator to the [F40FCA] providing evidence for its assessment that the critical benchmark's continued viability can be assured once mandatory contribution has been revoked;

(b)the provision of the benchmark is able to continue once the contributors mandated to contribute input data have ceased contributing;

(c)an acceptable substitute benchmark is available and users of the critical benchmark can switch to this substitute at minimal costs which shall be evidenced by at least a written report by the administrator detailing the means of transition to a substitute benchmark and the ability and costs to users of transitioning to this benchmark; or

(d)no appropriate alternative contributors can be identified and the cessation of contributions from the relevant supervised entities would weaken the benchmark to such an extent to require the cessation of the benchmark.

[F2710.In the event that a critical benchmark is to be ceased to be provided, each supervised contributor to that benchmark shall contribute input data for a period of time determined by the [F41FCA], but not exceeding the maximum five year period laid down in the second subparagraph of paragraph 6.]

11.The administrator shall notify the [F42FCA] in the event that any contributors breach the requirements set out in paragraph 6 as soon as reasonably possible.

12.In the event that a benchmark is recognised as critical in accordance with the procedure laid down in Article 20(2), (3), (4) and (5), the competent authority of the administrator shall have the power to require input data in accordance with paragraph 5, and points (a), (b) and (c) of paragraph 6, of this Article only from supervised contributors located in [F43the United Kingdom].

Textual Amendments