On 8 September 2022, the FCA published a Dear CEO letter concerning its supervision strategy for benchmark administrators.

The Dear CEO letter outlines the FCA’s supervisory priorities for benchmark administrators being:

  • Disclosure. The FCA has concerns that some benchmark administrators have not accurately described the economic reality that their benchmarks measure. It has also observed that where benchmark administrators broadly group their benchmark families for the purposes of their benchmark statements this can lead to poor disclosure. Whilst good disclosure is fundamental for all regulated benchmarks, the FCA has particular concerns in relation to ESG benchmarks and credit sensitive rates.
  • Quality of data and data controls. The FCA has observed occurrences of poor data quality and controls and are concerned these may impact the reliability and representatives of benchmarks. The FCA perceives particular risk with data inputs to cryptoasset benchmarks as these often measure fragmented, opaque markets.
  • Operational resilience. The FCA has observed some examples of an ineffective control framework. In some instances, this may have caused incidents such as late publication, non-publication and calculation errors which could impact the reliability of the benchmark. The FCA is also concerned that firms are not consistently reporting operational incidents to it in a timely manner.
  • Oversight and governance. The FCA is concerned that some of the risks it has identified above may be exacerbated by conflicts of interest, weaknesses in oversight and ineffective governance.
  • Competition. The FCA reports that it has heard concerns that unnecessarily complex licensing arrangements and other barriers to switching between benchmarks could be leading to an increase in prices that is not commensurate with increasing costs or improved service quality. The FCA expects benchmark administrators to engage with it on the Wholesale Data market study which it aims to launch in November 2022. This will look in more detail at markets covered by the Call for Input. Part of this will look at how competition works between benchmark administrators.