United Kingdom (and EU regulation)

ESMA proposes improvements to the EU regime of third country benchmarks

Introduction

On 19 August 2022, the European Securities and Markets Authority (ESMA) published its response to the European Commission’s consultation on the regime applicable to the use of benchmarks administered in a third country.

Earlier consultation

The consultation covered the topic of the continued use by supervised entities of third country benchmarks and the potential shortcomings of the current framework. The majority of the questions raised in the consultation targeted specific market participants (i.e. EU and non-EU administrators or users of benchmarks) and sought to collect quantitative and qualitative information on the state of the market and the use of third country benchmarks in the EU. Furthermore, the consultation also included a separate section addressed to all types of respondents asking for views on the functioning of the current third country regime and introduced proposals for an alternative regulatory and supervisory framework based on the concept of ‘strategic’ benchmarks. In its response, the ESMA shares its views on this separate section.

ESMA’s response

Key responses made by the ESMA are as follows:

The restrictions on the use of third country benchmarks should be removed following a risk-based approach while ensuring a level playing field between EU and third country administrators.
The proposal to create a new category of ‘strategic’ benchmarks is supported by the ESMA. This category would be the only category of benchmarks subject to mandatory restrictions of use, similar to the current rules.
The introduction of an EU ESG benchmark label would be an extra supporting tool against greenwashing.

ESMA emphasises that while the Benchmarks Regulation (BMR) covers a wide range of benchmarks used in the EU, so far very few jurisdictions have followed a similar regulatory approach regarding the provision and use of benchmarks. Therefore, the wide scope of the BMR would lead to the undesirable outcome of limited availability of third country benchmarks to EU investors as opposed to their non-EU peers.

Next steps

The ESMA has submitted its response to Commission. The Commission will prepare a report with recommendations on the effectiveness of the BMR to the European Parliament and Council.